In Xemex Contracting Inc. v Aspen Properties (Northland Place) Ltd., 2025 ABCA 49 [Xemex], the Alberta Court of Appeal evaluated the validity of a construction lien filed by a contractor against the fee simple interest of a landlord. Resolving this issue required the court to consider whether the landlord was an "owner" as defined in s.1(j) of the Prompt Payment and Construction Lien Act1 (the "Act").
This recent decision explains when a construction lien for leasehold improvements contracted for by a tenant may be registered against a landlord's fee simple interest.
Factual Background
Koor Energy Ltd. (the "Tenant") leased a small commercial/office space from Aspen Properties (Northland Place) Ltd. (the "Landlord"). Pursuant to the lease agreement, the Landlord provided the Tenant with an improvement allowance to renovate the leased space.
The Tenant hired Xemex Contracting Inc. (the "Contractor") to perform renovations and, in turn, the Landlord provided the Contractor with a construction manual containing protocols, procedures, and restrictions the Contractor was expected to follow. The construction manual necessitated the Landlord's participation in the renovation by requiring Landlord approval for all demolition, architectural, mechanical, structural, and electrical drawings. It also required a valid building permit, liability insurance, and enabled the Landlord to appoint a property manager to act as a point of contact within the Landlord's organization, and assist the Tenant throughout the renovation.
The Contractor abandoned the renovation after the Tenant failed to pay, leaving the leased space in a state of disarray. The Contractor subsequently registered liens against both the Tenant's and Landlord's interests. After failing to recover payment from the Tenant, the Contractor turned to the Landlord for payment. The Landlord refused, arguing that the construction lien was not validly registered.
Application and Chambers Court Decisions
The validity of the Tenant's lien against the Landlord's fee simple interest depended on whether the Landlord was an "owner" within the meaning of ss (1)(j) and 6(1) of the Act. In Alberta, to bring someone within the definition of "owner", a lien claimant must demonstrate that (1) the person has "an estate or interest" in the land, (2) that the person has expressly or impliedly requested that the work or materials be provided, and (3) that the work was done or materials provided on that persons credit, on their behalf, with their "privity and consent", or for their "direct benefit".2 The Application Judge found that the Landlord was an "owner" under the Act because the Landlord:
(i) held an estate or interest in the land;
(ii) actively participated in the renovation; and
(iii) received a direct benefit from the renovations.
On appeal, the Chambers Judge disagreed with the lower court on the third factor, instead finding that the Landlord was not an "owner" because they did not receive any "direct benefit" from the renovation. There was no "direct benefit" because the leased space was left in a state of disarray, the design layout was unattractive to prospective tenants, and significant expenses would be incurred to make the leased space available for rent. On this basis, the Chambers Judge found that the lien was invalid.
The Contractor then appealed the Chambers Judge's decision to the Court of Appeal.
The Court of Appeal Decision
On appeal, the Contractor argued that:
(i) the Landlord received a "direct benefit" from the renovations due to the renovation provisions in the lease agreement; and
(ii) in the alternative, the Contractor completed the renovations with the Landlord's privity and consent.
The Court of Appeal rejected both arguments and dismissed the appeal for the following reasons.
No "Direct Benefit"
In support of their argument that the Landlord received a "direct benefit", the Contractor relied on a clause in the Landlord's lease agreement, which stated that all improvements made to the premises automatically became the Landlord's property, unless explicitly agreed otherwise or removed by the tenant.3
First, the Court of Appeal confirmed that improvement allowances in commercial leases and landlord involvement in renovations are common, neither of which suggests a "direct benefit" to the Landlord.
Next, after reviewing previous decisions, the Court of Appeal held that reversionary interests in leasehold improvements upon the expiry or early termination of the lease does not equate to a "direct benefit".4 In the Court's view, to find a "direct benefit" by virtue of a reversionary interest casts the net too wide. Typically, "there must be some immediate benefit" to find a "direct benefit"5 – something that crystallizes when the work is done or the materials are supplied.6 However, the Court of Appeal did not close the door completely on the possibility of a "direct benefit" in circumstances where the benefit provided is not immediate.7 Ultimately, the question of whether there is a "direct benefit" is one of mixed fact and law, and each case must be assessed on its particular facts in light of the Act.
For the same reasons as the Chambers Judge, the Court of Appeal found that the renovations did not result in a "Direct Benefit" to the Landlord. However, if the Contractor was able to demonstrate that the Landlord benefited from a "turn-key" renovation, this would have leaned in favour of finding a "direct benefit".8 Accordingly, this ground of appeal was dismissed.
No "Privity and Consent"
Alternatively, the Contractor argued that the Landlord was an owner by virtue of the work being done with the Landlords "privity and consent" within the meaning of the Act.9 The Contractor supported this argument by referring to an agreement with the Landlord where it assumed liabilities, obligations and responsibilities arising from the renovation work. Furthermore, the Contractor argued that privity and consent arose from the Landlord's involvement in the renovation.
The Court of Appeal also dismissed this ground of appeal. Despite the Landlord's implicit request for the Contractor to perform the renovation, a request does not mean there was privity and consent.10 Knowledge of, or mere consent to, work being done is insufficient to establish privity and consent.11 Rather, something in the nature of a "direct dealing" is required.12
There is no question that the Contractor and Landlord had dealings throughout the renovation. The Landlord had knowledge of and consented to the renovation, but the Landlord's participation was aimed at facilitating the orderly and safe renovation of its property and sought to ensure that the renovation did not disrupt the operations of the building or jeopardize its integrity. Furthermore, the agreement where the Contractor assumed liabilities, obligations and responsibilities did not result in "direct dealings". Instead, it distanced the Landlord from risk and responsibilities associated with the renovation.
Commentary
In the context of leasehold improvements, landlords, tenants and contractors should be mindful of when an construction lien may be validly registered against a landlord's fee simple interest.
For the purpose of registering a construction lien for leasehold improvements, legal ownership alone does not typically create a "direct benefit" for a landlord. Similarly, active participation by a landlord for the purpose of facilitating the orderly and safe renovation of its property does not necessarily result in "direct dealings" between the contractor and landlord.
However, a "direct benefit" may be found where the landlord receives some immediate benefit from the leasehold improvement, such as profit sharing during the term of the lease. The Court of Appeal also suggested there may be circumstances in which landlords realize a direct benefit from leasehold improvements, even if the financial rewards do not materialize immediately.
There is no bright line rule for when a landlord who holds fee simple title will be an "owner" within the meaning of the Act, and therefore potentially liable for paying for the leasehold improvements through a validly filed construction lien.
The definition of "owner" in the Alberta Act is very similar to the definition of "owner" in the builders lien legislation in British Columbia13 and Ontario14. In all three provinces, to bring a person within the definition of "owner", the lien claimant must establish the three elements described earlier: (1) that the person has "an estate or interest" in the land, (2) that the person has expressly or impliedly requested that the work or materials be provided, and (3) that the work was done or materials provided on that persons credit, on their behalf, with their "privity and consent", or for their "direct benefit". Given the similarities in the legislation, the decision in the Xemex case may have an impact on how this issue is dealt with by the BC and Ontario courts.
Determining whether a lien may be filed against the interests of a landlord is ultimately a question of mixed fact and law, meaning it will always depend on the circumstances. Furthermore, application of the law may vary depending on which province the lien is being filed in. If you are a contractor, tenant, or landlord with questions about construction liens, we recommend consulting with one of our experienced construction lawyers to better understand your rights and potential risks.
Footnotes
2 Gypsum Drywall (Northern) Ltd. v Coyes, 1988 ABCA 58 at para 13.
3 Xemex at para 23.
4 Xemex at para 21.
5 Xemex at para 19, citing Northern Electric Co Ltd v Manufacturers Life Ins Co, [1977] 2 SCR 762 at para 147.
6 Xemex at para 20, citing Balzer's Canada Inc v Atco Power Canada Ltd, 2004 SKQB 104 at para 21.
7 Xemex at para 22.
8 Xemex at para 26.
9 See s 1(j)(iii) of the Act.
10 Xemex at para 29, citing Royal Bank of Canada v 1679775 Alberta Ltd, 2019 ABQB 139 at para 132.
11 Xemex at para 30, citing Marshall Brick Co v York Farmers Colonization Co, 1917 CanLII 596 (SCC), 36 DLR 420 at 427
12 Xemex at para 30, citing Suss Woodcraft Ltd v Abbey Glen Property Corporation, [1975] 5 WWR 57, 1975 CanLII 252 (AB KB) at paras 17 and 19.
13 Builders Lien Act, SBC 1997, c 45, s 1(1).
14 Construction Act, RSO 1990, c C.30, s 1(1); Parkland Plumbing & Heating Ltd. v. Minaki Lodge Resort 2002 Inc., 2009 ONCA 256 at para 61.
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.
