Canada: Is Your Lien Up To Code? B.C. Court Decisions Provide Clarity On Application Of Builders Lien Act

The British Columbia Supreme Court (Court) recently released two decisions regarding the application of the Builders Lien Act (Act), providing clarity on limitation periods for filing a lien claim and the circumstances where an excessive lien claim can be discharged for lesser security.

GREEN OAK

In Green Oak Development Corp (West 7th) Corp. v. Hans Demolition & Excavating Ltd. (Inc. No. 448429) (Green Oak), the Court considered the application of the limitation period for filing a lien claim where the owner claimed that a head contract had been terminated.

In Green Oak, the defendant, Hans Demolition & Excavating Ltd., (Hans) was a subtrade hired to work on a project (Project) owned by the plaintiff Green Oak Development Corp. (West 7th) Corp., (Green Oak). During the course of work on the Project, Green Oak changed the general contractor it had engaged, awarding the remainder of the work on the Project to another general contractor, Kindred Construction. Green Oak advised Hans and other subtrades of this by way of an email in September 2016.

In February 2017, Hans filed a claim of lien. Green Oak argued that as the head contract was terminated in September 2016, the lien limitation period was also triggered at that time and accordingly the lien filed in February 2017 was invalid because it was filed out of time.

Hans argued that the lien was filed within the limitation period because Green Oak did not notify it that the head contract had been terminated, or because the head contract was assigned and not terminated, and therefore, the lien period did not begin to run in September 2016.

A builders' lien must be filed within the time limits set out in section 20 of the Act. Where a certificate of completion has not been issued, the Act requires that a claimant file its lien no later than 45 days after the head contract is completed, abandoned or terminated, or, if there is no head contract, 45 days after the improvement has been completed or abandoned. The Act does not define the word "terminated".

Decision

The Court ruled that the lien limitation periods for subcontractors on the Project did not begin to run in September 2016, as Green Oak argued. The Court noted that Green Oak's email in September 2016 could have reasonably caused the subcontractors to understand that the head contract had been assigned as opposed to terminated. Given this uncertainty, the Court concluded that it was not plain and obvious that the lien was filed out of time and dismissed Green Oak's application.

Implications

The Green Oak decision demonstrates that an owner ought to give clear notice to subcontractors and other parties that may be affected by the termination of a head contract. If Green Oak had clearly stated that the head contract had been terminated, the Court may have found that the 45-day limitation period for subcontractors to file liens had been triggered.

Subcontractors should also ensure that they have a clear understanding of the status of the head contract. They should consider whether a notice from the owner with respect to the head contract could reasonably be considered a notice of termination such that it triggers the period to file a lien.

CENTURA

In Centura Building Systems v. 601 Main Partnership (Centura), the Court considered the circumstances where an excessive lien claim can be discharged for lesser security.

The defendant owner in Centura, 601 Main Partnership (601) hired the plaintiff subcontractor, Centura Building Systems (Centura) to perform work on the construction of a residential tower in Vancouver (Project) for C$1.367-million plus tax.

In the fall of 2015, disputes arose between Centura and 601 regarding alleged delays in Centura's work and in January 2016, 601 terminated Centura's contract. At the time the contract was terminated, Centura had been paid C$455,879.32.

Centura claimed C$1,136,593 was due and owing to it for materials and services it supplied to the Project at the time its contract was terminated and in March 2016, filed a builders' lien in this amount (Lien).

Builders' liens provide significant protection for contractors, subcontractors and material suppliers to enforce payment for unpaid work and materials. Because builders' liens are such powerful tools, claimants must strictly comply with the provisions of the Act when making a claim — liens cannot include the price of work not yet performed or materials not yet supplied.

The Act also provides mechanisms for owners and contractors to obtain relief from builders' liens by, among other things, allowing for the cancellation or discharge of liens in certain circumstances, such as where: the lien has not been filed in accordance with the requirements of the Act; the total amount of the lien has been paid to the claimant; the lien claim has otherwise been satisfied; or, if the action to enforce the claim of lien has been dismissed or discontinued.

Decision

The defendant, 601, sought an order cancelling the Lien, or alternatively, to reduce the Lien on the basis that it was excessive and an abuse of process. The Court did not dismiss the Lien because it noted it had not been presented with any authority suggesting that a lien could be cancelled on the sole basis that it was an abuse of process.

However, the court did order a reduction of security because it found that Centura's Lien included items that could not form part of the lien under the Act. While Centura could seek recovery for these costs at trial, the Court ruled it was inappropriate to secure those claims through a builders' lien. Despite this, the Court noted that there was a real question as to whether Centura had been paid for all the work and materials it supplied to the Project and ultimately ordered that security for the Lien be reduced to C$550,000. The Court found that this reduced amount, together with the holdback that had been maintained by 601, was sufficient security for Centura's claim.

Implications

Centura illustrates that courts will seek to balance the interests of owners and lien claimants in applying the Act, particularly when considering applications to cancel or discharge lien claims.

Lien claimants must ensure that they follow the requirements of the Act and limit their liens to the amount of unpaid work performed and materials provided to the improvement. As demonstrated in Centura, courts will consider all of the relevant circumstances when assessing the appropriate amount of security required to discharge a lien to ensure that the lien is not used as an excessively forceful pre-judgment tool.

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.

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