Liens (General) Flashcards
Which legislation dictates liens (federal or provincial)?
- Typically provincial regulation
- Federal regulation for federal projects
Source of law for liens
Provincial legislation (they are a creature of statute)
What provincial legislation for NB dictates liens?
Mechanics Lien Act
What is the purpose of lien legislation?
Financially protect people supplying work/materials who in that supply increase the value of the property
Why was lien legislation created?
- Lower members of the construction pyramid needed to be protected
- Common law contracts did not offer appropriate protection (privity of contract)
Construction Lien
Gives person who supplies labour, services or materials to a construction project who is unpaid a charge against the owner’s interest in that land
What does having a charge against the owner’s interest in land mean?
Allows for the supplier or labourer to force the sale of that land to secure payment
Two special things about liens
They are:
1) Extracontractual
2) Unilaterally exercised
What does a lien being extracontractual and unilaterally exercised means?
Don’t have to put them in the contract and you can’t contract out of them
When does a lien right arise?
When the first shovel hits the ground (as soon as ground breaks)
How long do liens exist?
Continue to exist until they expire or until they are asserted (limited time frame to exercise the right)
Clarkson Co v Act Lumbar Ltd
While lien legislation should be given liberal interpretation in the rights it gives, should give strict interpretation when it considers who is entitled to lien rights
Holdback
Lien legislation requires owners to hold back a portion of funds payable to the contractor for a period of time
What does holdback do?
Becomes security to labourers because they have a charge against the owners interest in land and have first dibs on the holdback
What is an advantage of lien legislation?
Expeditious litigation process
How do liens make an expeditious litigation process?
- Timelimes much shorter (ex: general litigation in NB is 2 years for liens it is 90 days)
- Technically class action
What do liens do in the creditors sense
Grants to one class of creditors (lien claimants) a security or priority that is not enjoyed by other ordinary creditors of the same debt (they get a charge upon the owners land)
What would the rule be if it were common-law and not lien legislation?
Those who supply work/materials to an improvement to land would only be able to rely on the credit of the person whom they contracted with
Which common-law rule does lien legislation disrupt?
Privity of contract
Object of lien legislation
Prevent owners of land from benefiting from improvements to their land without paying
What is the ultimate remedy prescribed by liens?
Sale of owner’s interest in land to satisfy valid lien claims
What credit status do lien claimants have?
Secured creditor (ability to force sale and higher priority in bankruptcy)
Lien legislation strictly construed
- Give narrow interpretation to provisions dealing with who is entitled BUT broad interpretation to provisions relating to enforcement of these rights
- Want to keep the class of people entitled to liens small
Broad interpretation to enforcement of lien rights
Once you qualify courts don’t want to be overly technical defeating rights
Lien Legislation is a ___ code
self-contained
Self-contained code
- Dictates who can do it, who can be subject to it, how it will be enforced
- If someone not entitled under legislation then like code does not exist
Substantial compliance
Substantial compliance with provisions regarding to registration of the claim and with the mode of realizing the lien shall be sufficient
Substantial compliance being sufficient means
Lien not invalidated for failure to comply with requirements of act unless someone is prejudiced by failure and then only to the extent of such prejudice
Which parts need to be strictly complied with
- Lien legislation is specific about what needs strict compliance
- Time periods set out in lien legislation need to be strictly complied with
Can federal crown be bound?
Lien legislation is provincial and cannot bind federal crown
Why can’t it bind the federal crown?
Crown’s interest in land cannot be sold so it wouldn’t make sense
Provincial lien legislation also would not apply to…
Property owned by a firm whose works have been declared by parliament to be for the general benefit of Canada
Declared by parliament to be for general benefit of Canada
- Mere declaration not enough
- Court will look at substance of the work over form
Exception to not being able to bind the crown
If they expressly subject its property to provincial legislation (ex: bidding contract says this)
Federal crown holding interest jointly
If the federal crown holds an interest jointly with another entity and that entity is subject to lien legislation, that entities interest can be sold
Application of Lien Legislation to Provincial Government
- Applies in some cases
- Where it does, applies differently than to private entities
- In some cases will not apply at all
Ex of application differently to provincial government
Cannot get a lien that attaches to the land but may be holdback requirements
Reserve lands
- Lien legislation does not apply to reserve land (except for some trust provisions that can)
- Public policy decision
What actions are liens classified as?
Procedurally classified as class actions
Class Actions
- Means all claims against a property/group of properties owned by the same owner will be disposed of at the same time, in the same court, and in the same action
- Practically not always the case
What can be liened?
In NB: Interest in land only and fixtures on that land
Liens will attach to___ cannot attach to ____
- Interest in land only
- Cannot attach to interests or rights of a personal nature
Lien will attach to
owner’s interest on the property
What is critical to know for liens?
Who the owner is
Registered owner?
Registered owner not always the owner as contemplated by statute
Statutory owner can be…
Registered owner, landlord, tenant, or purchasers under agreements of purchase and sale
How do you determine who owner is?
- Factual determination
- Courts look at the substance of the transaction rather than form
What does knowing who the owner is inform?
Determination of what the interest is and what the improvement was
Knowing owner to inform what the interest is
Where ultimate remedy is sale of interest, need to know what part of interest can be sold (determine what interest is at play to sell)
What if owners interest is only in the improvement?
Won’t be a lienable interest if owners interest only in the improvement rather than the land the improvement is on
Do you need legal interest?
No, equitable possessory interest can be enough
3 Part Test to Determine Statutory Owner
- Person has an interest in the land the work, service or supply was performed and that the interest can be sold
- Requested directly or indirectly that work, service or supply
- The work, service or supply was of such a nature that it will give rise to a lien under the legislation (work contemplated under legislation as lienable work)
Who has to establish the 3 part test to determine owner
Lien claimant
Lienable Work for NB
work done on the owner’s:
a) credit
b) behalf
c) with his privity and consent; or
d) for his direct benefit
Statutory definition of owner under Mechanics Lien Act NB
1) a person having an interest in land for which work is done or material is furnished
2) at his request express or implied and
3) a) upon his credit, b) upon his behalf, c) with his privity and consent, or d) for his direct benefit
and all persons claiming under him whose rights required after beginning of work or furnishing of material in respect to which the lien was claimed
Statutory definition of owner includes…
people whose rights are acquired after work
Tenants
- Statutory definition of owner expressly extends to tenants
- if the tenant has registered a lease after the work has started on the land
Condo corporation responsible for requesting the work (condo case)
- purchasers of those units have not been considered owners (they did not request the work)
- Practical result is liens registered after units sold were valid
Ultimate sale in the case of tenants
Ultimate sale is rare but just means the owner cannot contract out of their interest by renting
Onus of proving requesting of work
On lien claimant
How do you determine requesting of work?
- Question of fact
- Either express or implied
Tenants requesting improvement
legal owners interest will be subject to the lien where a lien attaches to tenancy only if the claimant gives notice of the work to the owner
Reality in courts treatment of tenants requesting improvement
- tend to treat prior knowledge as request
- For cases where the owner truly did not have knowledge, they will need to give notice
Who is the general lien claimant?
in order to be entitled to a statutory lien, a person must supply services or materials to lands or premises for an “owner”, contractor, or subcontractor
Lien rights arise only for
fixtures/land
Who do not have lien rights?
- People who supply/install moveable items
- Mere attachment to land is not a fixture
Massive installations give rise to lien rights?
Even massive installations cannot give rise to lien rights if they are not a component of the building nor are they consumed in the construction of the building
Ex of things that do have lien rights
- Complicated AC (even if removeable)
- Work of architects/ engineers
- Supply of materials
- The thing a cable connects to
- Rental equipment
Why does work of architects/ engineers give rise to lien rights?
work needs to relate to physical construction but doesn’t need to be the physical construction itself
When does supply of materials give rise to lien rights?
where placed on land where they will be constructed or incorporated into the making of the improvement (just has to reach the site or lay down materials in the immediate vicinity of the site)
Do not have lien rights
- Water cooler
- Portable structures on concrete pads
- Architect/ Engineer work
- A cable (not lienable but the thing it connects to is)
Architect/Engineer work that is not lienable
General rule: services rendered regarding planned improvements that don’t ultimately proceed are not lienable
Exception to general rule regarding Architect/Engineer work that is not alienable
Exception: unless the preparation of drawings, materials, etc. in and of itself enhances the value of the land
Maybe alienable
- Temporary structures connected to land but intended to be dismantled after a short period (determination is a factual consideration)
- Transportation of materials (lienable work does not necessarily need to be done on site)
- Consumed materials like oil or gas used in machines
In what circumstances are consumed materials not be lienable?
items used on other projects as well will not be considered to be consumed and will not give rise to a lien
Prohibition on moving material giving rise to lien
Most provinces lien legislation prohibit the removal of material that will give rise to a the lien from the site to the prejudice of the lien
General liens
allows lien claimants with a single contract for improvements on more than one parcel of land to have their lien follow the form of the contract, and lien all parcels of land for the price of all the services and materials which the person supplied to one or more of those parcels
Which contractor is not entitled to general liens?
A contractor who enters into separate contracts with a given owner is not entitled to a general lien
How can owners prevent general liens?
by stipulating that liens will arise and expire on a lot by lot basis
When do lien rights come into being?
- First shovel hits the ground
- NB Act: when work has begun or first material furnished
Duration of entitlement to lien right
Entitlement to lien right happens at the beginning of work and exists throughout the duration of the work, and for a specified period once the work is completed
Calculating lien claims
- Important to be specific with the amount you claim is owed
- If underestimate and not recognized in the timeframe, cannot amend it
- Overestimate, can be sanctioned with costs later
