Focus on Construction | Infrastructure - December 2010
In the Acera Developments case, the Alberta Court of Appeal was asked to consider the validity of a builders' lien filed by a homebuilder on lands owned by a developer. In particular, the Court of Appeal considered whether a land developer can be an "owner" under the Builders' Lien Act (the "Act") when a lien is registered by a homebuilder.
Acera was preparing to develop a 44‐acre, mixeduse subdivision in Cochrane, Alberta, a bedroom community outside of Calgary. In June 2007, Sterling agreed to purchase 136 four‐plex townhouse lots and paid deposits totalling $2.5 M on the $9.9 M purchase price (the "Purchase Agreement").
The Purchase Agreement contained a condition precedent that Acera would register the plan of subdivision before December 31, 2007. If the condition precedent was not met, the Purchase Agreement was to be of no force and effect.
The Purchase Agreement contemplated that Sterling would purchase the lots and build homes on those lots. Acera was to obtain the subdivision approval and transfer the lots to Sterling and, upon transfer of the lots, Sterling would pay the remainder of the purchase price. In the midst of a strong real estate market, the parties anticipated that Sterling would begin construction before Acera registered the plan of subdivision. Sterling had a right of possession as a tenant‐at‐will.
The Purchase Agreement provided that Acera's "Architectural and Construction Guidelines" applied to any dwelling constructed by Sterling. Acera enforced its Architectural and Construction Guidelines and, in fact, rejected some of Sterling's initial plans. To meet the surging market demand, Acera encouraged Sterling and the other homebuilders on the site to build show homes and "spec homes" so that the subdivision would be ready for its opening. Acera facilitated the building permit applications and built the undeveloped services and roadways, hydrants and street lights. Sterling commenced construction of 12 townhouses.
Acera was unable to get the plan of subdivision filed and none of the lots were transferred to Sterling. Sterling suspended the work of the townhouses in January 2009 and on March 16, 2009 filed a builders' lien against the lands.
Acera brought an application to have the lien declared invalid. Master K. Laycock dismissed the application, without reasons; on appeal. Justice Jeffrey returned that decision and found the lien to be invalid; and upon further appeal to the Court of Appeal, the lien was determined to be valid. At the Court of Appeal, the court found unanimously that the lien was valid, but there were two sets of reasons reaching this conclusion.
Section 6 of the Act allows for a lien to be registered against the interest of an owner. The primary issue was whether Acera was an "owner" under the Act:
'owner' means a person having an estate or interest in land at whose request, express or implied, and
- on whose credit,
- on whose behalf,
- with whose privity and consent, or
- for whose direct benefit,
work is done on or material is furnished for an improvement to the land and includes all persons claiming under the owner whose rights are acquired after the commencement of the work or the furnishing of the material;
Acera argued that since Acera did not have an agreement to purchase the townhomes, Acera could not have made a "request" for them to be built. Berger J.A., on behalf of the majority, cited several cases for the proposition that owners cannot avoid liability for liens simply by contending there is no contractual obligation to pay, including Parkland Plumbing and Heating Ltd v. Minaki Lodge Resort 2009 ONCA 256.
Based on the evidence in this case that the designs had been reviewed and the land developer had worked "collaboratively" with the homebuilder, the Court of Appeal found that "[a]ctive participation by a liened party in the work being done can bring that liened party within the definition of "owner" through demonstrating an implied request to do work."
As additional background to this case, it is noteworthy that Acera found itself in a position where it could no longer meet its obligations. A receiver was appointed and none of the lots in the subdivision were developed and none of 136 lots that Sterling was to have purchased were transferred to Sterling.
Acera argued that it did not receive any "direct benefit" from the construction of the townhomes as they were built for the purpose of selling to third party purchasers. The Court of Appeal disagreed as the improvements were attached to the land and owned by the owner of the freehold interest. By owning the freehold interest, Acera owns the improvements and thereby directly benefited from the construction of them.
While Acera argued that the subdivision carried on in the normal fashion and no developer would think that their land could be subject to a lien, the Court of Appeal determined that this type of interaction could, and did, give rise to an implied request by Acera.
The Court of Appeal split on the issue whether determining that the lien was not invalid was the same as finding the lien valid. The majority determined that the lien had been determined valid and that, other than quantifying the amount of the lien, no further steps needed to be taken.
Martin J.A., in the minority, addressed the argument that Acera had no underlying duty to pay for the townhomes in a different manner. He accepted that a builders' lien must be premised on an "underlying enforceable obligation to pay". However, he went on to find that the underlying claim could be based on a claim for unjust enrichment, though in this case there were no findings of fact to determine the issue one way or another. Based on this analysis, Martin J.A. would have directed a trial on the issue of whether Sterling had a valid restitution claim against Acera, finding that it was premature to declare the lien valid.
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