It is a commonly held misconception, or perhaps an often overlooked issue, that the provisions of mechanics' or builders' lien legislation do not apply to architects. There is some variance in the legislation across the country but in Atlantic Canada a review of the lien provisions makes it clear that architects have rights to lien in certain circumstances and in such cases, owners are required to maintain a holdback from payments in accordance with the provisions of the applicable provincial lien legislation.
While historically only an architect whose
prepared plans were actually constructed generally had a right to a
lien, the trend across Canada appeared to be shifting toward
upholding an architect's lien under more circumstances. The
redrafting of lien legislation in most provinces through the 1990s
refocused the justification of a lien on the provision of services
to the owner in respect of the land and the courts followed that
example.
Recently, there is indication that both legislators and the courts
may be shifting back towards a focus on the improvement of property
as the justification supporting an architect's lien, although
the definition of what constitutes an "improvement" still
varies greatly.
The legislation
The general right to a lien in Nova Scotia is established under section 6(1) of the Builders' Lien Act:
The provisions of section 6(1) of the Mechanics' Lien Act of Newfoundland and Labrador are very similar. The Mechanics' Lien Act of New Brunswick (section 4(1)) and Prince Edward Island (section 2(1)) are nearly identical and more concise:
A person who
- does, or causes to be done any work upon or in respect of an improvement, or
- furnishes any material to be used in an improvement,
for an owner, contractor or sub-contractor has, subject as herein otherwise provided, a lien for wages or for the price of the work or material, as the case may be, or for so much thereof as remains owing to him, upon the estate or interest of the owner in the land in respect of which the improvement is being made, as such estate or interest exists at the time the lien arises, or at any time during its existence.
The approach is not consistent across Canada. For example:
- The Manitoba Builders' Liens Act expressly provides at section 36 that an architect retained to provide architectural services in respect of construction or improving land does not have a lien against the structure or land for its professional fees and charges.
- Architects were specifically given the right to claim construction liens in Ontario by virtue of the passage of the Government Process Simplification Act in 1997. A similar change occurred to Saskatchewan's legislation when "improvement" was redefined to specifically include services provided by an architect.
- Recent changes to Ontario's legislation also expand the definition of "improvement" to include any installation of equipment that is essential to the normal use of the land or a structure on the land, which could extend lien rights to architects who participate in a building redesign that involves the installation of such equipment.
- In British Columbia, section 4(6) of the Builders' Lien Act provides that holdbacks are not to be retained from architects and engineers regardless of their lien status.
- The Atlantic Canadian provinces and Alberta chose not to specifically address the lien rights of architects, engineers or their work within their legislation.
The evolving scope of the lien right
In Nova Scotia, the scope of an architect's
right to lien was discussed in Nova Scotia Sand & Gravel
Ltd. v. Kidstone Estates Ltd. (1973), 13 N.S.R. (2d) 431. In
this case, the court concluded that an architect can maintain a
lien for the cost of plans prepared by him if he superintends or
directs subsequent building, but stated that the architect
wouldn't be entitled to a lien for the costs of preparing plans
alone where the building is not proceeded with. The architect in
this case was found to maintain a lien because of his inspection
services on site.
The most oft-discussed Nova Scotia case on an architect's right
to a lien, where the architect developed plans but the project did
not proceed, is actually a case about an engineering lien.
Jenkins v. Wilin Construction Ltd. (1977), 25 N.S.R. (2d)
19, held that an engineer who performed services for a proposed
project including the preparation of plans and drawings was
entitled to a lien even though the project was never built. The
judge found that what is now section 6(1) of the Nova Scotia
Builders' Lien Act was broad enough to encompass plans
created by an engineer because the work done by the engineer was
work done "with respect to the land". The court linked
the work done by the engineer to the work done by an architect who
was granted a right to a lien in a much earlier case on the basis
that an architect's plans are essential to construction work on
the property.
While Nova Scotia Sand & Gravel Ltd. has never been
overturned, there is a reasonable prospect that a court would apply
the Jenkins approach to a situation where an architect is seeking a
lien for work on plans that were not acted on.
Jenkins was considered in the Alberta case of LeDuc
Estates Ltd. v. IBI Group, [1992] 4 W.W.R. 561, where the
court found that architectural plans are so directly related to the
construction process as to fall within the definition of services
in respect of an improvement of the land. The issue appeared to be
settled in Alberta with Raimond Fung Architect Ltd. v. Dr.
Jeremy Chai Professional Corp. (1992), 1 C.L.R. (2d) 114,
where the court stated that an architect could assert a valid lien
claim for the preparation of plans even though his plans were not
used in the project.
In 1246798 Ontario Inc. v. Sterling, [2000] O.J. No. 4261,
the court overturned a motion judge's finding that plans
prepared by architects in order to gain a city permit were not
lienable. The court commented that:
The matter did not proceed to trial to resolve the outstanding issue of whether the city permit had enhanced the value of the owner's land. The case certainly implied that even if nothing was constructed, if the architect's work had contributed to improving land value, the architect could well be entitled to a lien.
Is the tide turning back?
Recently, in John Barlot Architect Ltd. v.
413482 Alberta Ltd., 2010 ABCA 51, the architects provided
services to the contractor with regard to a sales centre and a
condominium project. The Court of Appeal upheld the liens related
to the sales centre, which was actually constructed. However, liens
related to the condominium project, which was not constructed, were
invalidated because the bulk of the work involved rezoning,
subdivision and dealing with development issues. The court held
this was not sufficiently connected to construction of an
"improvement" to support a lien. The Raimond
case was not discussed. The architect also argued he could
"shelter" non-lienable work under a lien supported by
lienable work. The court disagreed, suggesting the value of
non-lienable items should be deducted from the purchase price
before calculating the holdback amount.
The Alberta Court of Queen's Bench followed both of these
findings in UPA Construction Group Limited Partnership v. Lake
Placid Properties (Park) Inc., [2010] ABQB 675, in
finding that "an architect's services do not need to be
physically performed upon the improvement to give rise to a lien,
however they must be directly related to the process of
construction".
The Attorney General of Ontario is considering further amendments
to Ontario legislation that would see a deemed division of
contracted services of an architect into two parts: supply of
services up to and including commencement of the improvement and
supply of services thereafter. There is no indication yet whether
the change would allow pre-commencement services to be
lienable.
The application of the lien right
Where there is an applicable lien right, an owner
must retain the holdback under the lien legislation from all
payments to the architect, which holdback is for the benefit of the
subconsultants. The architect is in turn obliged to retain the
holdback from all payments to its subconsultants, which holdback is
for the benefit of sub-subconsultants. It is not uncommon in the
industry for owners to overlook the holdback requirement in respect
of an architect's services. This may be because often there are
no subconsultants involved.
The consequences for failure to retain the holdback are primarily
risk of double payment of that amount. For example, if on a
contract with an architect for $100,000 an owner does not retain
the required holdback of 10 per cent ($10,000), but instead fully
pays the $100,000 to the architect, it risks paying again the
amount of the holdback it should have held to satisfy valid lien
claims by subconsultants. A subconsultant who performs services has
a lien upon the owner's property, which is secured by the
holdback retained by the owner. The owner will be liable to the
subconsultant up to the amount of the holdback required to be
retained ($10,000 in this case). If the owner has paid out the full
$100,000 to the contractor/architect, it will still be liable to
satisfy a valid subconsultant lien claim up to the amount of the
required holdback. Thus, the risk of double payment where the
holdback was not retained.
As noted above, the owner's holdback is for the benefit of the
subconsultants. Thus, if there are no subconsultants, the risk of
double payment is minimal where the holdback was not retained. On
the basis that the architect has a direct contract with the owner,
it can bring a claim for breach if it is not paid, as well as
asserting a lien on the property where it has not waived that
right.
While an architect may be able to waive its right to a lien under
the applicable legislation, it cannot waive the rights of its
subconsultants (or independent contractors if it has any) to claim
a lien. Nor can any party agree to exclude the application of the
lien legislation (and the lien provided) for anyone providing
manual labour.
Practically speaking, there is no regulatory offence for failing to
hold back in accordance with the statutory obligations. The primary
concern for the owner is being required to pay for certain work
twice. There are a number of potential ways to mitigate this
risk:
- a covenant by an architect not to retain any subconsultants, together with an express waiver of its lien rights;
- an indemnity by the architect in favour of the owner against liens by subconsultants; or
- security provided in place of the holdback.
Of course, these possible solutions must be considered in the context of the trust provisions under the applicable lien legislation.
What this means for you
While there is some variance across Canada,
architects do have a right to lien for services that are directly
connected to an improvement or construction. There is little doubt
that this is the case in Atlantic Canada, though there may be some
argument over the scope of that right.
In general, where an architect prepares plans and designs which are
implemented in a construction project, there will be a right to
lien for the amount owing in respect of the services. The right to
lien is less clear where the construction does not actually
proceed, but where the services can be linked to some improvement
in the owner's interest in the land, there may be a right to
assert a lien. At least until there is further legislative change
restricting that right. There are other nuances which affect the
scope of this lien right which require consideration in the context
of the particular circumstances. However, as a general rule it is
prudent for construction parties to assume that an architect will
have a right to lien for its services and that payments made to an
architect or its subconsultants will be subject to the holdback
provisions of the applicable lien legislation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
