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Contractor Know Thyself: If You Don’t, You May Lose Your Lien

Builders' liens are "creatures of statute". A builders' lien is a new right created by lien legislation that would not otherwise exist at common law.  As such, a lien claimant must bring itself strictly within the statutory framework in order to take advantage of these statutory rights.

Justice Khullar's recent Advantage Custom Homes Inv. v. Waterman, 2018 ABQB 25 decision serves as a good reminder that Alberta courts will strictly interpret lien legislation when it comes to the ability to register a lien.

The Non-Existent Company's Lien

The facts in Advantage were fairly straightforward.  Owners of a piece of land entered into a project management contract with 7083335 Canada Inc. for the construction of a home on the lands.  The contract was created in the spring  of 2015. Work proceeded, and during the initial stages of the work 7083335 Canada Inc. invoiced and was paid for its work by the Owners.

Work on the home allegedly finished in September of 2016. A payment dispute arose, and on October 26, 2016, a company known as Advantage Custom Homes Inc.  registered a lien against the Owner’s title.  At the time of registration, Advantage Custom Homes Ltd. did not yet exist, but 7083335 Canada Inc. had plans in the works for its creation.

In the spring of 2016, 7083335 Canada Inc. sent out a general announcement to its customers, indicating that within the next six months it would be changing names to Advantage Custom Homes Inc. In fact, on November 9, 2016, a new business was incorporated with the name Advantage Custom Homes Inc.  7083335 Canada Inc. was the majority shareholder of Advantage Custom Homes Inc.

Prior to incorporating Advantage Custom Homes Inc. , the directors of 7083335 Canada Inc. passed a resolution indicating the new company would assume the old company's assets and liabilities for its homebuilding business.  After incorporation, the shareholders of Advantage Custom Homes Inc. passed a resolution purporting to assume all benefits and burdens of 7083335 Canada Inc.'s homebuilding business.

A Non-Existent Company is not a "Person" that can Register a Lien

The Owners brought an application to have the October 2016 lien struck from title.  Their argument was that Advantage Custom Homes Ltd. did not exist at the time the lien was registered, and hence had no lien rights.

Advantage Custom Homes Ltd. argued that the Court should take a remedial approach to interpreting the Builders' Lien Act, as the Owners understood that 7083335 Canada Inc. was the entity behind Advantage Custom Homes Ltd., and understood that it provided value to the lands.

In arriving at her decision, Justice Khullar focused on Section 6(1) of the Builders' Lien Act.  Section 6(1) provides that a lien is created when "a person"  causes work, or furnishes materials in respect of an improvement for an owner, contractor or subcontractor.  Justice Khullar explained that in order to determine who might be a "person" for the purposes of Section 6(1), the critical issue was to determine "who did the work", because "the party doing the work is entitled to file a builders' lien".

Based on the facts above, Justice Khullar found that 7083335 Canada Inc. was the party to the contract with the Owners and provided services to the Owner. She explained that if 7083335 Canada Inc. "wanted to file a lien, it could have under s. 6(1) as it was a "person" at the relevant time".  But, 7083335 Canada Inc. had not done so.

She concluded that "the issue is simply that the corporate entity of Advantage Custom Homes Inc. did not exist on October 26, 2016 so was not "a person" that could file a lien." The mere fact that a general announcement has been sent out in the spring of 2016 about a name change did not give the non-existent company legal status to register a lien.

She went on to explain that "this strict interpretation regarding the ability to file a lien makes sense because it is a creature of statute" and that "claimants must bring themselves strictly within the statutory framework".

What does this mean for you?

Builders' liens can be tricky. Small mistakes at the time of registration can result in the loss of lien rights. Contractors that operate using multiple corporate entities, or that engage in corporate restructuring during the course of a project, need to be particularly mindful that the proper, existing, legal entity is the party registering the lien.  The best way to avoid losing a lien is to seek legal advice before the lien is registered.  For advice and assistance in the registration of liens, contact Ryan Krushelnitzky at Field Law.