Determining Validity of Contractor Claim of Lien
Constructive Thoughts Newsletter
July 2023 - 4 min read
Understanding engagement relationships and responsibilities regarding subcontractors is crucial for construction company owners. A recent decision ruled that a lien was valid, even though the property owners were unaware of the subcontractor's existence. The Court highlighted the concept of "engagement" and stated that subcontractors can register a lien if the owner requested or was aware of the work being done. The burden of payment for work done rests with the property owner. Parties to construction contracts should be sure to accurately name all parties in contracts and seek legal advice to understand lien eligibility and obligations.
Registering a lien can appear straightforward. Typically, it involves completing simple template forms. But if the identities of certain parties in the contract chain are unknown or in flux, it can cause problems.
What happens when a lien names the correct party, but the underlying contract names the wrong one? Can an owner remove a lien registered against their property if they were never aware of the identity of the lien claimant? The British Columbia Supreme Court explored these questions in Klippenstein Development Corp v Ven Den Brink.
The owners had hired “Blueprint Custom Homes c/o Scott Klippenstein” to build a custom house on their private property. Scott Klippenstein prepared a construction agreement and named Blueprint as the construction manager. Klippenstein had only sent invoices to the owners through Blueprint. One year after the construction began, Klippenstein had not been compensated for his work on the project.
Klippenstein’s corporation, KDC, had performed all the work for which the owners contracted. KDC, having gone unpaid for its work, registered a lien against the property. The lien had named the correct party, KDC, as the party who had performed the work giving rise to the lien claim. But the contract named Blueprint as the party who completed the work. The Owners were not aware of KDC’s existence, having only retained Blueprint.
The owners applied to the Court to have the lien removed from title, as they had never contracted with or received an invoice from KDC for any work on their property.
What the Court Said
The Court held that the lien was valid. But the Court’s analysis in reaching this conclusion shows the importance of naming the correct parties in a contract at the outset to avoid future disputes.
KDC argued that it was entitled to register a lien against the property because it performed the relevant work. The owners argued that since they did not know of KDC when they entered into the contract with Blueprint, they should not be held to have “engaged” KDC in performing work at the property.
The Court first confirmed that both contractors and subcontractors can register a lien against the improved property if they can establish that the owner has engaged them to conduct that work.
The Court then considered the definition of “engaged” under the BC Builders Lien Act. “Engaged,” the Court found, includes someone hired to work on the property, regardless of whether they were asked to conduct that work by the owner or a contractor. Being engaged to work on a property does not require a formal written contract between the parties. A contractor is someone engaged. A subcontractor is similar, except a contractor or another subcontractor engages them. In either case, the key is which entity was engaged.
The Court held that Klippenstein personally was the contractor on this project, as Blueprint was a trade name and not a corporation. Klippenstein had performed work and supplied materials which benefited the owners. The owners had engaged Klippenstein as a contractor, who then engaged KDC. This made KDC a subcontractor. Accordingly, the Court held that an owner does not need to know the identity of a subcontractor for that subcontractor to be eligible to register a lien against the property.
However, for a subcontractor to be eligible for a lien, the improvements it made must have been requested by the owner. If the owner knew of those specific improvements before they were completed, then an owner will be held to have requested that work, regardless of whether the owner directly requested the subcontractor to perform it.
Even though the owners here were unaware of the existence of KDC, they were aware of the work being done on their property. Therefore, the Court held that in this case, the owners requested the work performed by KDC. The Court reiterated a long-standing principle underlying lien claims across Canada: “The purpose of the BLA is to prevent owners of the land from getting the benefit of buildings erected and work done at their request, on their land, without paying for them.” In other words, the lands which receive the benefit of work bear the burden of paying for that work.
The Court held that KDC’s lien was valid. Therefore, the owners were required to pay KDC for their work for the lien to be removed from title.
While this case was decided in British Columbia, the core principles apply in Alberta and throughout Canada. While prudent parties will ensure that all parties are properly named in their contracts, there is some flexibility in the analysis a Court will undertake to ensure that parties who performed work on construction projects receive payment for that work. Also, subcontractors can rest assured that they are still eligible for a lien regardless of whether they had any direct dealings with the owner, or even if the owner has no knowledge of their existence.
Liens are a complicated area of law. Contact Anthony Burden in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law’s Construction Law Group if you need advice on whether you are eligible to register a lien.
Link to decision: Klippenstein Development Corp v Ven Den Brink, 2023 BCSC 961
Special thanks to Robin Young, Field Law Summer Student, for assistance authoring this article.