Untangling a Web of Lien Claims
October 2021 - 4 min read
Builders’ liens on condominium projects are commonplace. The large scope of work required and the lack of surety bonding often leaves unpaid subcontractors or suppliers with little recourse in the event of non-payment. In Avli BRC Developments Inc v BMP Construction Management Ltd, 2021 ABQB 412, the Court dealt with a cluster of lien claims from two condominium projects. The Court was tasked with trying to determine whether interim or final distributions could be made to lien claimants, the validity of various liens, and the concept of substantial compliance with the requirements of the Builders’ Lien Act (the “BLA”).
Avli and WOW were the owners of the projects at issue. BMP was the general contractor on both projects. Construction was stopped after the owners alleged there were deficiencies in the projects. The owners withheld payment from BMP, who in turn did not pay its subcontractors. These subcontractors then registered many builders’ liens.
Despite their disputes, the owners and BMP agreed that a partial payment of the lien fund could be made to the subcontractors other than BMP. The first issue for the Court was what amounts were available for this purpose.
Section 18(3) of the BLA provides for a lien fund with two components. First, there is the 10% holdback of the value of the work done or material furnished (“Part A”). Second, there is an additional sum due and owing to the general contractor (“Part B”). Prior case law has confirmed that no set-off is permitted against Part A, but set-off is allowed against Part B.
Applying this reasoning, the Court calculated that 100% of the subcontractor claims against Avli could be paid, and 55.6% of the subcontractor lien claims against WOW could be paid. Further, the full amount of one sub-subcontractor’s lien could be paid on the WOW project.
Classes of Lien Claims + Priorities
The Court relied on subsections 18(3) and (4) of the BLA in reaching these amounts. These subsections place caps on the amount that can be claimed from the lien fund by subcontractors at various levels of the contractual chain.
Where liens are registered by subcontractors, subsection (3) limits the Part B quantum to the amount “due and owing but unpaid” to the contractor or sub-contractor who has requested the work or materials, to the extent this exceeds the mandatory Part A amount.
A sub-subcontractor, in contrast, only has resort to a portion of the lien fund based on the value of the work performed by the subcontractor that hired it. In other words, the portion of the lien fund applicable to sub-subcontractor liens is calculated based on the value of work performed by the subcontractor, not by the general contractor.
The Court held that the entitlement of classes of lien claimants is set by reference to the entitlement of the party above them. The entitlement to recover from the lien fund starts from the bottom of the construction chain (i.e. sub-subcontractors), then subcontractors, with the remainder of the lien fund being available for the general contractor only after other claims have been paid.
Subcontractor and supplier lien claimants thus have a priority to the lien fund, and sub-subcontractors have a “super-priority”, capped at the entitlement of the party above them. The sub-subcontractor on the WOW project was thus entitled to be paid in full, with this amount deducted from the amount payable to the subcontractor who retained it.
Lien Validity Issues
Given that these projects were condominiums, issues arose concerning lien validity of the lands against with the liens were registered. In particular, the Court considered whether liens registered only against an additional condominium sheet were valid.
Shortly before the lien claims were filed, Avli submitted a condo plan for registration. Upon this registration, Avli was no longer the fee simple owner of the lands, but was the owner of every one of the condo units created. Each of the units had an interest in the common property. As a result, Avli owned all of the units as well as all the common property.
Under the Condominium Property Act (“the CPA”), Avli needed to set up an interim board of directors to manage the common property, but there was no evidence they had done so. Nonetheless, Avli attempted to use this registration to suggest that some lien claimants had incorrectly registered their claims. Avli suggested these claimants registered against the wrong interest in lands or claimed only against the additional condominium sheet and not any specific unit.
Section 78(b) of the CPA states that a lien registered against the additional condominium sheet is deemed to be registered against every certificate of title for each unit in the condominium. However, Avli relied on section 78(1)(b) of the CPA in stating that the work must be on the request of the corporation. Avli argued that the work was requested in its capacity as a developer before the condo corporation was created, and therefore, section 78(2)(c) did not apply. Avli argued that the liens should have been registered against each separate unit.
The Court noted that the relevant inquiry was who had requested the work. Here, the condo corporation was entirely within the control of Avli, and all parties expected that Avli would register a condo plan. The condo corporation would, in the circumstances, be found to have fully ratified and adopted all the terms of the original construction contract. As a result, the liens were found to be valid.
The Court also discussed the idea that the failure to follow any of the requirements of section 34 of the BLA does not necessarily invalidate a lien, other than the requirement of actual registration. Substantial compliance is enough as long the Court is satisfied there is no prejudice to the owner, contractor, subcontractor, mortgagee, or anyone else. If someone is prejudiced, the lien is only to be invalidated to the extent there is prejudice. The Court relied on this principle to conclude that some of the liens which had only been registered against the additional condominium sheet were still valid with respect to substantial compliance, given the circumstances of the case.
A multiplicity of liens, particularly on condominium projects, can be challenging to navigate. Determining the validity of a lien, and ultimate entitlement to payment via the lien fund, is no easy task. Field Law’s team of construction lawyers can assist parties with these issues, regardless of their place in the contractual chain. Contact Anthony Burden or any member of our Construction Group if you require assistance.