Real Estate and the Builders’ Lien Act

1. In most real estate transactions, the Builders’ Lien Act need not be considered. However, where some “improvement” has been contracted, a Lien issue can arise. Real Estate and the Builders’ Lien Act

2. The builder/developer and the purchaser enter into an agreement whereby the land purchase is separated from the construction completion and payment; in other words, the land transaction takes place shortly after signing the agreement and the land is immediately registered in the name of the purchaser. The construction then proceeds. When it was finished, all payments were made to the contractor. Shortly thereafter, a dispute with a trade contractor develops and the trade contractor files a lien Real Estate and the Builders’ Lien Act

3. The owner of a home decides to renovate a portion of his/her home and contracts with a contractor to perform the work. Some issues about the quality of a portion of the work ensue but the contractor is paid the full amount. Shortly afterward, the homeowner receives a letter containing a notice of a lien filed by one of the subcontractors. The homeowner does nothing about this. Several months later he decides to sell his house. Real Estate and the Builders’ Lien Act

4. A person buys a home from a home-builder. A few weeks after title transfer, a lien is registered on the home by one of the workers for the home-builder and the new home owner receives notification from the land titles office.. Real Estate and the Builders’ Lien Act

5. A person buys a home from a home-builder which is to be constructed. During the construction period, the purchaser participates actively in the construction by redefining the location of certain walls, finish selection, appliance changes and the exterior finishes. In addition, the purchaser drew the design for the exterior landscaping for the home-builder to complete. Throughout the process the home-builder insisted that the purchaser initial all changes to the plans. When construction was complete, the conveyancing took place and the title was registered in the name of the purchaser. Shortly afterward, the plumbing trade contractor registered a lien on the property due to alleged costs incurred as a result of the changes initiated by the purchaser. Real Estate and the Builders’ Lien Act

6. A person purchased a condominium as an investment and has now decided to sell it. Out of the blue she received a notice from the Land Titles Registry that a lien has been registered against her unit for work done on the sidewalk adjacent to the condominium property. Real Estate and the Builders’ Lien Act

7. Role of the Builders’ Lien Act The purpose of the Lien Act is to provide some protection for persons who contribute to the improvement of a property and who are not paid for their efforts. In addition, the Lien Act defines the maximum liability that a property will attract as a result of construction of an improvement. Real Estate and the Builders’ Lien Act

8. The Lien Act has a number of key provisions: A party that improves a land has a charge against that land for the value of the improvement done. An owner, when paying the contracted party, must retain 10% of the value of the work done for a defined period – until 45 days after the completion of the work The maximum value of the charge against the land is the value of the “lien fund” as defined by the act. The value of the “lien fund” is defined in the act as being 10% of the value of the work done plus any amount due and owing to the contracted party. Real Estate and the Builders’ Lien Act

9. Under the Act, there are a couple of specific requirements for a valid lien: An improvement must have been made; There must be a contract for the improvement. (no gratuitous work). Real Estate and the Builders’ Lien Act

10. In the Act, an “improvement” is defined as follows:   1(d)    “improvement” means anything constructed, erected, built, placed, dug or drilled, or intended to be constructed, erected, built, placed, dug or drilled, on or in land except a thing that is neither affixed to the land nor intended to be or become part of the land; Real Estate and the Builders’ Lien Act

11. Let us consider the following scenarios: 1 - Lien registered on title before closing of transaction Typically, this will stop any real estate conveyance. However, some counsel will attempt to move the transaction forward by withholding the amount of the Lien from the funds being transferred. This is extremely dangerous since the final amount of the value of the lien can only be set by the Court; the unfortunate purchaser may find that he/she has assumed liabilities that were only partially covered by the lien amount withheld. Real Estate and the Builders’ Lien Act

12. Removal of a lien registered on property is, typically, not very difficult. The Act s.27(3) and s.48 provides for the payment into court of the amounts of the Major and Minor lien funds such that the funds will stand in place of the lands as security. For example, in a recent transaction, we discovered a lien on our client’s land a week before the closing of a refinancing. We were able to remove it in 4 days by consent between the parties. Since the removal of a lien by payment into court is a matter of right for the “owner” of the lands, these applications are generally not contested unless the amount of the lien fund(s) or the allowance for costs is disputed. Real Estate and the Builders’ Lien Act

13. 2 -Lien registered on title after closing Once in a while, particularly with condominium sales, a trade contractor will register a lien on a title after the title has transferred. Such lien registrations, assuming the work was done before the title transfer and the purchaser was not the “owner” (see below) are invalid and can be disposed of easily. This situation was dealt with by the Supreme Court in Hager et al v United Sheet Metal et al, [1954] SCR 384 which was confirmed as the applicable law in Alberta in Ali et al v Dolan’s Electrical Enterprises (Edmonton) Limited (1980), 13 Alta LR(2d) 219. Real Estate and the Builders’ Lien Act

14. Complications can arise if the role of the purchaser is not clear. The concept of the “owner” is quite important. A couple of acts that we deal with in this context are: Land Titles Act Condominium Property Act Builders’ Lien Act Each of these statutes define the “owner” differently: Real Estate and the Builders’ Lien Act

15. In the Land Titles Act, the “owner” means a person entitled to any freehold or other estate or interest in land, at law or in equity, in possession, in futurity or expectancy. Real Estate and the Builders’ Lien Act

16. The Condominium Property Act says that the “owner” means a person who is registered as the owner of the fee simple estate in a unit, or the leasehold estate in a unit when the parcel on which the unit is located is held under a lease and a certificate of title has been issued under section 5(1)(b) in respect of that lease. Both of these statutes equate the role of “owner” with entitlement to the interest in the lands.. Real Estate and the Builders’ Lien Act

17. The Builders’ Lien Act takes a different approach; an “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. Real Estate and the Builders’ Lien Act

18. For a normal residential purchase, this should present little problem; the “owner” as defined by all statutes would be the seller. If the property was a new home, the developer and the seller are probably the same entity and if a lien was registered by a trade contractor or worker, it would be dealt with before closing. At closing, any residual deficiencies are listed and any subsequent work after closing would not give rise to a lien. Real Estate and the Builders’ Lien Act

19. Timing of Registration of Lien Parties often misunderstand the rules regarding the timing of registration of liens. A lien registered too late is invalid. In general, a lien must be registered within 45 days of the last day that the improvement was worked on. Real Estate and the Builders’ Lien Act

20. Note that the lien must deal with work being done to “improve” the lands and cannot deal with the correction of deficiencies. This is the reason why correction of items on the deficiency list prepared at closing of a new home will not lead to a builders’ lien. Real Estate and the Builders’ Lien Act

21. Now let’s talk about the scenarios that I started with: The builder/developer and the purchaser enter into an agreement whereby the land purchase is separated from the construction completion and payment; in other words, the land transaction takes place shortly after signing the agreement and the land is immediately registered in the name of the purchaser. The construction then proceeds. When it was finished, all payments were made to the contractor. Shortly thereafter, a dispute with a trade contractor develops and the trade contractor files a lien. Real Estate and the Builders’ Lien Act

22. Here the purchaser would probably be characterized under the Act as the “owner”. Note that the actual conveyance of the property may not have to take place. Simply an agreement for sale of the property may be sufficient. In this case, the purchaser/owner would be required to retain holdback from the builder for a period from the start until 45 days after the completion of construction. Depending on the sale contract, this could mean that all deficiencies would have to be completed. Any valid lien would be paid from the lien fund. Real Estate and the Builders’ Lien Act

23. The owner of a home decides to renovate a portion of his/her home and contracts with a contractor to perform the work. Some issues about the quality of a portion of the work ensue but the contractor is paid the full amount. Shortly afterward, the homeowner receives a letter containing a notice of a lien filed by one of the subcontractors. The homeowner does nothing about this. Several months later he decides to sell his house. Real Estate and the Builders’ Lien Act

24. If 180 days has elapsed since the filing of the lien, it can be removed by a simple letter to Land Titles. If it is a shorter period, the process for removal of a lien must be followed. Typically, we would recommend that an attempt at negotiated resolution take place but if that is unsuccessful, funds should be placed in Court to stand in place of the lien. Real Estate and the Builders’ Lien Act

25. A person buys a home from a home-builder. A few weeks after title transfer, a lien is registered on the home by one of the workers for the home-builder and the new home owner receives notification from the land titles office. Real Estate and the Builders’ Lien Act

26. If the owner has not been involved in the construction, this lien is invalid and a simple application will have it removed. Costs would be awarded to the owner. Real Estate and the Builders’ Lien Act

27. A person buys a home from a home-builder which is to be constructed. During the construction period, the purchaser participates actively in the construction by redefining the location of certain walls, finish selection, appliance changes and the exterior finishes. In addition, the purchaser drew the design for the exterior landscaping for the home-builder to complete. Throughout the process the home-builder insisted that the purchaser initial all changes to the plans. When construction was complete, the conveyancing took place and the title was registered in the name of the purchaser. Shortly afterward (less than 45 days), the plumbing trade contractor registered a lien on the property due to alleged costs incurred as a result of the changes initiated by the purchaser. Real Estate and the Builders’ Lien Act

28. This is a fairly common situation and, here, the purchaser may be found to be the “owner” due to his involvement. If that were the case, the lien might be found valid and the Owner would be directed to pay the trade contractor from the lien fund. If the Owner did not take holdback and had paid out the home-builder, the Owner could find himself paying twice for some work Real Estate and the Builders’ Lien Act

29. A person purchased a condominium as an investment and has now decided to sell it. Out of the blue she received a notice from the Land Titles Registry that a lien has been registered against her unit for work done on the sidewalk adjacent to the condominium property. Real Estate and the Builders’ Lien Act

30. The Condominium Corporation has authority to direct that work be done on the common property or any of the units. Here, if the Condo Corp authorized the work and did not pay for it, the lien is legitimate. The owner of the condo unit can have it removed by paying a pro-rata share of the lien amount into court pending resolution of the claim. If the condo corp did not authorize the work, then the lien would probably be found to be invalid. This latter situation might occur where the developer authorized work after the condo corp was formed but without the consent of the condo corp. Real Estate and the Builders’ Lien Act