Lessons Learned
- Take advantage of the intended efficiencies of builders’ lien procedure by cooperating with other lienholders and the court to streamline filings and applications.
- If registering a lien against condominium common property – which will be the vast majority of work performed on a typical condominium building – register a lien against the certificates of title for all of the condominium units.
- If attempting to invalidate a lien, assert prejudice and provide evidence of that prejudice.
Construction
Avli BRC Developments Inc. owns land in the trendy inner-city Calgary neighbourhood of Inglewood, on which it began developing an apartment-style condominium in 2019. Avli contracted BMP Construction Management Ltd. to act as construction manager, and BMP entered into multiple subcontracts for work and materials.
In October 2019, after construction on the condo apartment was underway, Avli registered its condominium plan with the Land Titles Registrar, at which point Avli’s ownership of the land converted from a single certificate of title to separate certificates of title for the individual condo units, each of which contained a partial interest in the common property. The registration also created a numbered condominium corporation to manage the common property pursuant to the Condominium Property Act, but Avli did not appoint a board of directors for it as is also required by the Act.
Preliminary Litigation
A month later, the relationship between Avli and BMP soured over allegations of deficiencies. BMP invoices went unpaid, construction stopped, and BMP in turn failed to pay the invoices of subcontractors and suppliers.
Predictably, the liens flew from all quarters, including a lien registered by a sub-sub-contractor. Avli brought an application pursuant to section 48 of the Builders’ Lien Act (since then, replaced by the Prompt Payment and Construction Lien Act, RSA 2000, c P-26.4) and by November 2020 had obtained an order allowing it to post security in the form of lien bonds in exchange for the removal of the liens from title.
Proceedings complicated and duplicated. Some parties had filed the statements of claim and certificates of lis pendens within the 180 days required by the Builders’ Lien Act. Others had not and their liens ceased to exist, which prompted a successful application by Avli for (i) a declaration that those liens were not valid and (ii) a proportionate reduction in the amount of the lien bond they’d posted as security.
Of those liens that remained, most had been filed under separate statements of claim. Some parties had successfully applied for an order declaring their liens valid, some had not, and of those who had not, Avli contested the validity of some. By the time the matter was heard before a master in April 2021, the issues had expanded to also include multiple applications for declarations of a valid lien, multiple applications for summary judgment by some but not all subcontractors against one or both of Avli and BMP, and the issue of whether an interim or final payment could be made from the lien fund to the subcontractors, resulting in no fewer than eighteen court files before the master presiding at the hearing.
Initial Hearing
Procedure
Master Robertson acting as application judge (Avli BRC Developments Inc. v. BMP Construction Management Ltd., 2021 ABQB 412) began his analysis by observing that section 50 of the Builders’ Lien Act should have prevented this procedural situation, as it states that “all persons named as parties in the statement of claim and all registered lienholders are parties to the proceedings”, including – in his interpretation – proceedings under section 48 for removal of a lien: “that is,” Master Robertson wrote, “each lienholder is a party to every other lienholder proceeding. Each lien claimant should be entitled to obtain a certificate of lis pendens in the first action commenced by any lien claimant on the project.”
The master regretfully observed that because no established practice existed to facilitate this intent of the Builders’ Lien Act, “everyone usually starts their own lawsuit”. He directed that all further applications relative to the Inglewood condo project be brought under the action commenced by the originating section 48 application only, since that action contained the lien funds posted by Avli.
Liens Against the Additional Sheet
The major material issue at the hearing was the validity of certain liens containing errors, real or apparent, including several filed only against the additional condominium sheet without naming any specific condo unit.
As explained by Master Robertson, per the Condominium Property Act Regulation the Registrar may add additional “sheets” to a condominium plan to record any prospective or possible future endorsement, registration, memorandum, or notification that might be applied to the plan, including a lien.
A lien registered on the additional sheet is deemed to be also registered against the certificate of title for each unit by the Condominium Property Act, but only if the work/materials were supplied “on the request of [the] corporation”.
Therein the rub: Avli had never appointed a board of directors for the condo corporation, and only the board of directors of the condo corporation is entitled to order work be done on the condo’s common property, not the owners of the individual units. This encompasses effectively all of the work in question, pointed out Master Robertson, since the reality is that except for items like interior unit paint, most of a condo apartment is composed of common property:
The roof is common property. The walls (other than interior partitions) are common property. The entrances and elevators are common property. The hallways are common property. The walkways leading to the entrances are common property. The demising walls separating the units are common property.
Avli argued that the work it requested was in its capacity as developer, not on behalf of the condo corporation, and that since Avli owned every unit through its individual title once the plan was registered, liens against Avli needed to be applied against every individual unit to be valid.
Master Robertson observed that the Condominium Property Act does not excuse the developer from further responsibilities for the construction of the project once the condo plan is filed, and concluded that in the absence of an appointed board of directors, one of those responsibilities must have been for Avli to act in the role of an interim board: the absurd alternative was that for the month after the filing of the condo plan where construction continued, everyone on site, including Avli as owner of all of the units, was trespassing on common property and performing unauthorized work.
Consequently, Master Robertson determined that the corporation must be found in the circumstances to have fully ratified and adopted all of the terms of the construction contract between Avli and BMP, in effect requesting that the work be completed and giving validity to liens against Avli filed via the additional sheet.
Other Lien Errors
Master Robertson noted that apart from the requirement that an actual registration occur, failure to follow any of the requirements of the Builders’ Lien Act regarding how a lien is to be registered does not necessarily invalidate it: substantial compliance is enough so long as no prejudice arises to (e.g.) an owner, contractor, subcontractor, or mortgagee from the failure. Even then, the lien is only invalidated to the extent that the person impacted is actually prejudiced by the failure.
Avli advanced no evidence suggesting that it had actually been prejudiced by any of the concerns it had raised about irregular registration.
Master Robertson reflected on the reality that builders’ liens are often registered by the subcontractors themselves without the assistance of lawyers, as was in fact the case for some of the lien claimants before him, and none of the documents a subcontractor typically receives (e.g. a purchase order, contract, change order, etc.) will normally disclose the legal description of the property. Ascertaining the correct legal description is made even more difficult after a condominium plan has recently been registered, since a claimant against all of the common property and units must then try to find out how many units there are in total, and on which units the claimant actually worked or provided materials for.
Since all of this must be done within 45 days of the work’s abandonment or completion, a deadline for which the proper calculation is itself not always obvious, Master Robertson explains that the Builders’ Lien Act was intentionally written to accommodate some error. In the case at bar, some of those errors included one subcontractor naming the condo corporation instead of Avli as the owner of the interest claimed against and two others only registering their lien claims against a single unit, even though almost all of their work was actually on the common property.
Master Robertson clarified that it does not count as prejudice for the purpose of substantial compliance that Avli would have less money remaining in the lien fund, since that is a natural consequence of any use of substantial compliance to cure an error in a lien filing: prejudice only occurs where someone was misled and did anything to their detriment in consequence, and noting again the lack of evidence of prejudice to Avli by that definition, declared the liens in question valid.
Master Robertson concluded with a cautionary note that if there had hypothetically been a sale of the project to pay the lien claims or if the lien fund had been inadequate and a pro-rata payout had occurred, prejudice against the other lien claimants would likely have reduced what otherwise would have been recovered by a correctly-executed lien filing.
Court of Appeal
Master Robertson’s decision was upheld by the chambers judge on appeal and has now been upheld by the Court of Appeal. The appellate decision’s general tone and its repeated mention of the deferential standard of review suggests the affirmation was not a perfectly enthusiastic endorsement, and that had the facts on the record been even slightly different, the appeal may very well have had a different outcome.
The Court makes its preference clear that in similar cases in the future where the subject of the lien is work against condominium common property, parties file liens against title to all individual condo units, not a single unit or only the sheet. Out of an abundance of caution the Court allows that a lien claimant may also wish to register their lien against the additional sheet, but relying solely on such a filing is neither advised nor straightforward in terms of its impact on the resolution of the lien dispute.