In Xemex Contracting Inc. v Aspen Properties (Northland Place) Ltd. ("Xemex ABCA")1,the Alberta Court of Appeal recently considered whether an unpaid contractor retained by the tenant to perform leasehold improvements could maintain a valid lien against the landlord's fee simple interest. The question before the Court of Appeal was whether the landlord qualified as an "owner" for the purposes of section 1(j) of the Prompt Payment and Construction Lien Act (the "PPCLA").2
Under the PPCLA, the definition of "owner" has three components. First, to be an owner, a person must have an interest in the land. Second, the person must have expressly or impliedly requested that the work be done or material furnished. Third, the work must be done on the person's credit, on their behalf, with their privity and consent, or for their direct benefit.3 The issue in this case concerns the third component.4
Background
Aspen Properties (Northland Place) Ltd. ("Aspen") was the owner and landlord of a small commercial office building that entered into a commercial lease with Koor Energy Ltd. ("Koor") as the tenant. Under the terms of the lease agreement, Aspen provided Koor with a tenant improvement allowance to renovate the leased premises. In turn, Koor engaged Xemex Contracting Inc. ("Xemex") to perform the leasehold improvements. Prior to the commencement of the work, Aspen provided Xemex with a construction manual that set out certain construction rules and regulations Aspen expected Xemex to follow. The manual provided, among other things, that no construction would commence without Aspen's approval of the work to be performed. Upon the commencement of the work, Aspen was actively involved in various aspects of the project and was kept apprised of its progress.
Ultimately, Xemex ceased work for Koor due to non-payment. Xemex registered liens for the unpaid invoices against Koor's leasehold interest and Aspen's fee simple interest in the land. Xemex obtained two judgments against Koor totalling $263,242.10 plus costs; however, its recovery efforts against Koor were fruitless. Xemex then turned to Aspen for payment of the unpaid invoices.
Initially, the applications judge ruled that Aspen was an "owner" within the meaning of the PPCLA as the work was impliedly done at Aspen's request and for its benefit. However, this decision was overturned on appeal to a chambers judge on the basis that, although the work was impliedly done at Aspen's request, Aspen did not receive a direct benefit. The Court stated that for a direct benefit to exist, "there must be some immediate benefit."5 In this case, the construction project was left incomplete and in a state of disarray, and would cost Aspen considerable money to make the premises available for marketing. The Court found that Aspen did not gain a direct benefit from Xemex's work and dismissed the appeal on the basis that Aspen did not meet the third component of the definition of "owner" under the PPCLA. As a result, the lien was declared invalid.6
Xemex appealed the chambers judge's decision, arguing that (i) Aspen received a direct benefit from the leasehold improvements, and (ii) in the alternative, Xemex performed the leasehold improvements with Aspen's privity and consent. The Court of Appeal upheld the chambers judge's decision and dismissed the appeal.
Takeaways
In Xemex ABCA, the Court of Appeal found that the landlord did not receive a direct benefit due to the specific factual circumstances of the case. In particular, the work in question was left in disarray, incomplete, and reflected an office layout that would make marketing the space challenging and costly for the landlord. Nonetheless, the Court set out some helpful considerations for determining whether the "direct benefit" requirement under the PPCLA is satisfied:
- Mere legal ownership of a fee simple interest is not enough to establish a direct benefit to the landlord for the purposes of the PPCLA – more is required.
- Active participation by a landlord in increased revenue from the demised premises may constitute a direct benefit.
- Improvement of common areas beyond those leased may constitute a direct benefit.
- A reversionary right to leasehold improvements upon expiry or termination of the lease, without more, is not sufficient to establish a direct benefit to the landlord.
- There may be no direct benefit when a landlord must spend money to either complete the improvements or retrofit the premises for future use.
- A landlord's active participation in and control over a construction project may be relevant, but must be viewed in the context of an owner's interest in ensuring that the improvements are performed in a way that does not adversely affect other tenants or the building itself.
These considerations demonstrate that the specific facts of each case are crucial in determining whether an improvement meets the threshold of a "direct benefit." Landlords and contractors should carefully consider their rights and potential liabilities related to tenant leasehold improvement projects.
While not specifically considered in the decisions of the Court of Appeal or the chambers judge, an interesting question arising from these rulings is whether services performed or material furnished can still constitute a lienable "improvement" for the purposes of section 1(d) of the PPCLA if no direct benefit is derived by an "owner." Here, the Court suggested that, despite the work being performed, it was valueless to the owner. These scenarios are not limited to landlord-tenant situations, and it is possible to advance this type of argument in challenging the validity of any lien.
Footnotes
1. Xemex Contracting Inc. v Aspen Properties (Northland Place) Ltd., 2025 ABCA 49 ("Xemex ABCA").
2. Prompt Payment and Construction Lien Act, RSA 2000, c. P 26.4 ("PPCLA").
3. Xemex supra note 1 at para 9.
4. Ibid at para 10.
5. Xemex Constracting Inc. v Koor Energy Ltd., 2023 ABKB 577 at para 24.
6. Ibid at paras 29-30.
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