Canada: What's Old Is New Again – Municipal Reserve Lands In Alberta Cannot Be Liened

Builders' liens are a useful tool for unpaid contractors and subcontractors on a construction project. They provide a right to make a claim and register an instrument against title to a parcel of land, with the ultimate remedy being a sale of those lands in default of payment of the lien. However, not all lands in Alberta can be liened. The Builders' Lien Act ("BLA") carves out specific exemptions (i.e. public highways).

But there are other types of lands not mentioned in the BLA which, when coupled with other provincial and federal legislation, may not be lienable. One such type of land is "municipal reserve" or "municipal and school reserve" land.

Municipal Reserve Lands Cannot be Liened [for now]

Whether these "municipal reserve" or "municipal and school reserve" lands can be subject to builders' liens was recently considered by the Alberta Court of Queen's Bench in Golden Triangle Construction Management Inc v Nuwest Interior Systems Inc, 2019 ABQB 292.

This case dealt with the construction of two schools – one in Calgary and one in Okotoks. Golden Triangle Construction Management Inc. ("GTCM") was the general contractor for both projects. The respondent lienholders were either subcontractors or sub-subcontractors. The liens were all discharged from title by posting lien bonds in Court.

There were no issues with respect to the timing of the liens or whether the correct lands were liened. The sole issue before the Court was whether the liens were valid and enforceable since the project lands were designated as "municipal reserve" (Okotoks school) or "municipal and school reserve" (Calgary school).

The municipal reserve designation was specified in the lot number on each certificate of title, as follows:

PLAN 1311183 BLOCK 25 LOT 13MSR (MUNICIPAL AND SCHOOL RESERVE) PLAN 1612653 BLOCK 26 LOT 35MR (MUNICIPAL RESERVE)

The designation of lands as municipal reserve is carried out under the Municipal Government Act (the "MGA"). Under the MGA, municipal reserve land can only be used as a public park, a public recreation area, for school board purposes or to separate areas of land that are used for these purposes. More importantly, municipal reserve lands can only be sold at the direction of municipal council, and upon a sale, the lands must still be used for one of these purposes.

GTCM argued that since municipal reserve lands cannot be subject to a forced Court sale, the liens were ultimately unenforceable and thus invalid. The lienholders countered that since the liens had been discharged from title, it did not matter whether the lands could be sold – the lien bonds were the security, and there was nothing preventing the bonds from being used to pay out the liens.

The Court agreed with GTCM's position, and held that the liens in question were all invalid. The Court relied on an old decision of the Court of Appeal in McFarlane Oil Co v Sturgeon (Municipal District No. 90), finding that liens against municipal reserve lands are unenforceable, based on the wording of what was at that time the Planning Act. The Planning Act is now subsumed into the MGA, and the restrictions on sale of municipal reserve lands are unchanged.

With respect to whether posting security to discharge liens changes the analysis, the Court ruled it does not. The Court concluded that out of fairness to owners and general contractors, payments into Court should not result in the loss of any lien validity arguments. If Court hearings on lien validity could be held within a couple of weeks of lien registration, posting security would not be needed. But given delays inherent in the Court system, posting security and contesting validity months later requires that the party posting security not relinquish any of its rights.

This decision was appealed, but all appeals have been withdrawn.

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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