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Form for Registering Liens on Leasehold in Alberta

Will Changing a Form Make It Easier for Claimants to Register a Lien on Leasehold in Alberta?

Registering a builders’ lien in Alberta? It’s imperative to correctly identify and notify all parties within the ladder of supply, and ensure the form is completed in its entirety.

In Encore on Enforceability of Defective Liens, author Jonathan Martin reviewed an Alberta case where the lien claimant correctly identified the fee simple owner in its lien, but failed to identify the leasehold interest. Subsequently, the court vacated the claimant’s lien for failure to comply with statute.

Alberta Lien Requirements in Tenant/Leasehold Situations

In Alberta, if furnishing to a tenant improvement, the statute provides for a notice prior to the lien.

Where the lien attaches to a leasehold interest, a claimant may serve notice upon the fee owner at least 5 days prior to first furnishing materials or services. This notice will allow a lien against the fee interest unless the fee owner responds with a notice of non-responsibility within 5 days from receipt of the claimant’s notice.

The lien must be filed within 45 days from last furnishing and within 45 days from substantial performance, completion or abandonment of the contract.

The Case of Encore Electric Inc. v Haves Holdings, 2017 ABQB 803

The fee simple owner of the property is Albari Holdings Ltd. (Albari) and the leasehold interest is held by Haves Holdings Country Hills Gym Ltd. (Haves), operating as Gold’s Gym.

Haves hired Encore Electric Inc. (Encore) for the improvements to the property. When Haves failed to pay Encore, Encore filed a lien. The lien form completed by Encore contained a space to list the fee owner and space for an interested party other than the fee owner; however, Encore only identified the fee owner.

Among other issues addressed, Encore argued the form it completed was sufficient for a lien on the leasehold interest of Haves. And despite failing to identify the leasehold, Encore claims it should have been given the opportunity to correct the form.

But, as author Martin recaps, the court stated the document can only be amended if the lien was registered against the correct interest (fee simple vs. leasehold).

“…[O]n the basis that a lien that names the incorrect owner can be rectified and upheld because of the substantial compliance provisions of the Act, so long as it is registered against the correct interest.

However, a lien registered against an incorrect interest cannot be rectified. In this case, the lien was registered against the ownership interest instead of the leasehold interest and could therefore not be rectified.”

Is the Solution to Revamp the Existing Lien Form?

Martin suggests perhaps a new form is the answer. Martin states Alberta’s lien form is the only form to indicate the project owner could be someone other than the fee simple owner.

“Alberta’s form is the only one to even mention that the “owner” can be the owner of an interest other than a Fee Simple, but not everyone outside of the legal profession knows what a Fee Simple is.

An obvious solution may be to simply create better forms, which include an easily accessible definition of “owner” under the legislation. The British Columbia form, on the other hand, does not even ask for the owner to be identified. So long as the correct people are given notice and the land is correctly identified, all is well.”

A Better Solution: Don’t Go It Alone

This is another reminder of the dangers associated with completing lien forms without legal guidance. Failing to list the leasehold interest on the lien left one claimant unpaid $686,000. That is a lot of money to lose for a ‘simple’ mistake.

Mechanic’s Lien Rights in Canada at a Glance

Let’s Talk Mechanic’s Lien Rights in Canada

Over the last few years, several provinces in Canada have modernized or proposed amendments to their mechanic’s lien laws. Notably, Ontario paved the way for longer lien deadlines and prompt pay statutes, with its changes in 2018. Like lien rights in the U.S., each of Canada’s provinces has its own statute, which dictates when/if a notice should be served, when a lien should be recorded, and when a suit action must be initiated. So, let’s travel north and review the steps for securing mechanic’s lien rights in Canada.

Project Types: Private, Provincial Crown, Federal Crown

Although today’s post is primarily about mechanic’s lien rights in Canada, it’s worth noting that projects in Canada will fall into one of three categories:

  • Private: improvement contracted by a private entity, e.g., a person, company, or corporation
  • Provincial Crown: improvement of public works or building under formal contract made by Provincial government
  • Federal Crown: a contract for construction, alteration, or repair of any public building or public work of the Canadian government

Provincial and Federal Crown projects are generally not lienable, and any remedy available to claimants will likely be under a Labour & Material Bond. The Labour & Material Bond is a surety bond issued as assurance of payment to certain parties should the principal of the bond breach their construction contract.

10 Provinces, 3 Territories, 1 Requires a Preliminary Notice

Canada is comprised of 10 provinces: Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland / Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan, and 3 territories:  Northwest Territories, Nunavut and Yukon. Only one requires a preliminary notice to preserve mechanic’s lien rights: Quebec.

For those familiar with securing lien rights in the U.S., it may seem odd to not have a preliminary notice requirement. After all, most states require a preliminary notice and NCS’ research shows 97% of the time serving a notice will prompt payment, reducing the likelihood of a mechanic’s lien.

Though most Canadian provinces do not have preliminary notice requirements, you could serve a non-statutory notice. This gently worded notice alerts parties on the ladder of supply that you are (or will be) furnishing to the project.

Is 1 the loneliest number? If you are furnishing to a project in Quebec, you should serve notice (Declaration of Contract) upon the owner prior to furnishing or prior to the fabrication of specially fabricated materials. The lien (aka legal hypothec), when later filed, will be limited to the materials or services provided after the notice has been served.

I did say only 1 province has a notice requirement, and while that is technically the case, both Ontario and Nova Scotia provide claimants an opportunity to serve a written request upon the owner, prime contractor, or subcontractor for project information and a copy of any payment bond.

Also, Ontario, Prince Edward Island, and Saskatchewan have a Notice of Lien which may be served upon the payer (the owner, prime contractor, and subcontractor), requiring them to retain, in addition to the holdback, an amount sufficient to satisfy a lien.

Lien & Suit Deadlines Will Sneak Up on You

When you review the chart below, you may notice two things right away: the lien deadlines are often calculated from your last furnishing, and the deadlines happen quite quickly. In the U.S., we frequently see lien deadlines within 90-120 days from last furnishing (even 8 months in New York!). The same is not true for Canada, where lien deadlines are generally within 30-60 days from last furnishing.

Mechanic’s Lien Rights in Canada at a Glance

The National Lien Digest provides greater detail, but here are the general lien deadlines for all 13 provinces/territories:

[table id=3 /]

Earlier I mentioned Ontario recently modernized their mechanic’s lien statute. Part of the modernization included the implementation of a longer lien filing period, giving would be claimants an additional 15 days to file their liens. (Lien deadline used to be 45 days from last furnishing.)

Advice for Lien Rights in Canada

Because deadlines are short, carefully track your deadlines, monitor open invoices, and maintain an open line of communication with your customer.

If you have questions about securing lien rights in Canada or need assistance with filing a lien, please contact us! In addition to our network of attorneys in the U.S., NCS has a well-established network of attorneys in Canada who are prepared to assist with your claim.

Canada: Provincial Construction & Your Payment Rights

Canada: Your Payment Rights on Provincial Construction Projects

If you are furnishing to a construction project in Canada, you follow steps to secure mechanic’s lien or bond claim rights, much like you would when furnishing to a project in the United States. Construction projects in Canada will likely fall in to one of three categories: private, provincial crown/government, or federal crown/government.

  • Private: improvement contracted by a private entity, e.g., a person, company, or corporation
  • Provincial Crown: improvement of public works or building under formal contract made by Provincial government
  • Federal Crown: a contract for construction, alteration, or repair of any public building or public work of the Canadian government

What is a Provincial Project?

A provincial project is the improvement of public works or building under formal contract made by the provincial government. The provincial government is the equivalent to state government in the U.S.; where the U.S. has 50 states, Canada has 13 provinces.

Often, construction claims on provincial projects are recovered via a Labour & Material Bond, which is a payment bond.

Labour & Material Bond: A surety bond, particularly on public projects, issued as assurance of payment to certain parties should the principal of the bond breach their construction contract.

Currently, only 2 provinces have payment bond requirements for provincial projects: New Brunswick and Ontario.

  • New Brunswick: On Crown Construction contracts of $500,000.00 or more, a bid bond and a payment bond will be required. On Crown Construction contracts less than $500,000.00, a bid bond and a payment bond may be required.
  • Ontario: generally, payment bonds are required for general contracts of $500,000.00 or more.

We are watching proposed legislation in other provinces where payment bonds may soon be statutorily required on provincial projects.

No Payment Bond? File a Public Works Act Claim

Different than a bond claim, a Public Works Act Claim (public improvement lien) is a claim served upon the provincial crown, in which the public entity may pay the claimant directly from funds owed to the prime contractor. The public improvement lien is available in the following provinces:

  • Alberta
  • Manitoba
  • New Brunswick
  • Newfoundland
  • Nova Scotia
  • Ontario
  • Saskatchewan

How Can the Public Works Act / Public Improvement Lien Help in the Event of Bankruptcy?

In his article, Doing Work on a Provincial Project? Protect Yourself with a Public Works Act Claim, author Anthony Burden reviewed a recent case before the Alberta Bankruptcy Court. You can read his article in full for the details, but ultimately the bankruptcy court declared a claimant’s Public Works Act claim took priority over unsecured claims and the claimant received payment in full.

“The Court lifted the automatic stay to allow funds to be paid out of Court to… its sub-subcontractors, in the amount of their proven claims. This was done without a formal Order approving the BIA Proposal by [debtor]. Despite [debtor’s] insolvency, its sub-subcontractors were able to receive full payment for their debt claims and were not required to share pro-rata.”

Convenience of Prevenient Arrangements and a Text Message

What Is a Prevenient Arrangement and What Does It Have To Do With a Text Message?

A prevenient arrangement occurs when parties enter “…into an ongoing relationship for the supply of services or materials over time, often at multiple locations.” This is according to Catriona Otto-Johnston, author of When Calculating Lien Periods, it’s Convenient to be Prevenient.

As an example, let’s say I own 5 separate properties and I hire ABC Contracting for improvements at each of these properties. ABC Contracting and I have an ongoing agreement of sorts. Generally, in the US, we would treat the improvement to each property as an individual project. Thus, there would be 5 first furnishing dates and 5 last furnishing dates (one for each project). However, in Alberta, under a prevenient arrangement, these 5 projects would be consolidated into one; meaning one first furnishing date and once all properties have been improved, one last furnishing date.

Clear as mud?

A Real-Life Example May Offer Clarity

In a case before the Alberta Queen’s Bench, Picturesque Landscaping Inc v Moderno Homes Inc, 2018 ABQB 5, Moderno Homes, Inc. (Moderno) hired Picturesque Landscaping Inc. (Picturesque) for landscaping services, apparently to multiple properties.

Picturesque registered a lien February 12, 2016. Obviously Moderno contested the lien and argued Picturesque failed to register its lien timely. The legal opinion indicates the “critical date” is December 27, 2015 — 45 days prior to the date of the lien filing.

Did Picturesque furnish on or after December 27? As you can imagine, Picturesque said it did furnish after December 27, whereas Moderno said Picturesque didn’t do any furnishing that late in December.

Picturesque stated its last furnishing date was January 4, 2016, when it had to do site cleanup. However, as you know, site cleanup doesn’t generally constitute as a substantial last furnishing (think punch list or warranty work).

So, if Picturesque’s last furnishing date of January 4, 2016, wasn’t substantial, why didn’t the judge invalidate Picturesque’s lien?

Because of a text message.

A Text Message Changed a Legal Decision?

Well, the text message didn’t turn the entire case upside down, but it certainly helped Picturesque. According to the court opinion, although work may not have been done at the property against which the lien was registered, Picturesque was still furnishing to a separate property owned by Moderno.

“Moderno says…no work was done at 1118 Premier Way that late in December. But the parties do not dispute that on December 29 Kory Scott of Moderno and Sansalone of Picturesque exchanged text messages about Picturesque finishing the backfilling at a different Moderno property.

The text message revealed there was additional work performed by Picturesque, for Moderno, beyond the key date of December 27. Back to the legal opinion:

“The parties referred to it as “16A”. It appears that work was done after December 27, 2015, by Picturesque for Moderno at 16A. That work at 16A may be enough to render the lien valid in respect of 1118 Premier Way if there was the alleged Broader Arrangement. The work done on one property subject to a prevenient contract may operate to extend the time for registering a lien or liens against all such properties subject to that Broader Arrangement, and potentially by a single lien for all.

This text, regarding additional work at a different property, indicates there may have been a continuous or ongoing contract between Picturesque and Moderno. And, in Alberta, that can extend the lien filing period.

Though, in her article, Otto-Johnston notes the judge didn’t specifically say whether a prevenient arrangement existed.

“While the Court did not ultimately decide whether a prevenient arrangement was in place, its decision shows that such an arrangement can have a significant impact on validity of a lien and the limitation period to register a lien.”

Based on the judge upholding Picturesque’s lien, it seems the judge did believe such agreement existed.

Are Prevenient Arrangements Only Applicable in Canada?

While I can’t say this with complete certainty, it appears prevenient arrangements are available in most of the provinces. Also, in my research, I can see parallels between prevenient arrangements and service contracts. (The lienability of service contracts and/or maintenance agreements is a forthcoming topic!)

Do you think you are furnishing under a prevenient arrangement? Obtain a legal opinion and, as Otto-Johnston states, know that it may require a trial to prove the existence of the arrangement.

“As this case shows, a prevenient arrangement can extend the time to register a lien against all properties, where work was completed or materials furnished at different times or locations.  However, if there is a dispute as to whether your contract is in fact a prevenient arrangement, this case indicates that a full trial may be required in order to prove the nature of your agreement and validity of your lien.”

Lien Should Be Filed by Registered Entity

A Lien is Only Valid if it is Filed by a Registered Entity

A construction lien can be invalidated if the lien claimant doesn’t exist. Well… wait. Of course, a non-existent entity can’t file a lien! In this case, “doesn’t exist” = “not registered” with the Secretary of State or comparable agency.

Registered Name, Not Just for UCCs

Frequently, when referring to the importance of an entity’s name and its standing with the Secretary of State, we are discussing UCC filings. After all, Article 9 dictates the debtor’s name should appear on the Financing Statement as it appears on the public organic record. Not to mention, if an entity isn’t in good standing with the Secretary of State, it’s often an early warning sign of bigger issues.

‘Know Thyself”

Ryan P. Krushelnitzky reviewed an Alberta court decision in his article, Contractor Know Thyself: If you don’t, you may lose your lien.

Essentially, the lien claimant registered its lien under the name Advantage Custom Homes Inc. However, Advantage Custom Homes Inc. was not a registered entity at the time the lien was registered. The business was transitioning from 7083335 Canada Inc. to Advantage Custom Homes Inc., and while a public announcement was made about the upcoming changes, the changes were not yet in effect.

Ultimately, the property owners contested the lien and argued the lien was invalid because “a non-existing company is not a person that can register a lien.”

The judge relied on section 6 of the Builder’s Lien Act, specifically the word “person.”

Builders’ Lien Act, RSA 2000, c B-7, s 6(1)

Creation of lien

6(1) Subject to subsection (2), a person who

(a)    does or causes to be done any work on or in respect of an improvement, or

(b)    furnishes any material to be used in or in respect of an improvement,

for an owner, contractor or subcontractor has, for so much of the price of the work or material as remains due to the person, a lien on the estate or interest of the owner in the land in respect of which the improvement is being made.

According to Krushelnitzky, “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.”

And in this case, the party that performed the work at the time was 7083335 Canada Inc. not Advantage Custom Homes Inc.

“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.” – Justice Khullar

Krushelnitzky’s Take Away

Krushelnitzky reminds claimants, small mistakes matter.

“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.”

NCS Best Practice

When filing a lien, ensure your backup documentation is in line, and confirm you are filing under the correct legal name. The name, as it appears on your contract, should match the name as it appears with the Secretary of State, W-9, etc. If you are in the process of a name change or the transition occurs mid-project, be prepared to provide supporting documentation, such as copies of the Articles of Incorporation or merger documents.

Business names change and registrations/renewals can be overlooked.

If you have any concerns, it’s best to seek legal guidance as soon as possible.

Register Operator’s Liens with a PPSA

Executing an Operator’s Lien? Take Time to Register it with a PPSA

In a recent Alberta court decision, a creditor claimed it had priority in the defunct debtor’s estate, because the creditor and debtor had executed an operator’s lien. The operator’s lien, however, was not registered in compliance with the PPSA. Subsequently, the creditor did not perfect its security interest and did not hold priority.

What Section of the PPSA Governs the Priority of an Operator’s Lien?

In a recent legal decision, the Court of Queen’s Bench of Alberta stated operator’s liens fall under section 35 of the PPSA.

Residual priority rules

35(1) Where this Act provides no other method for determining priority between security interests,

(a) priority between perfected security interests in the same collateral is determined by the order of occurrence of the following:

(i) the registration of a financing statement, without regard to the date of attachment of the security interest,

(ii) possession of the collateral under section 24, without regard to the date of attachment of the security interest, or

(iii) perfection under section 5, 7, 26, 29 or 77,  whichever is earlier,

(b) a perfected security interest has priority over an unperfected security interest, and

(c) priority between unperfected security interests is determined by the order of attachment of the security interests.

Essentially? First in time, first in right. Which means, if a Financing Statement isn’t registered, a security interest is unperfected.

Cansearch Resources Ltd v Regent Resources Ltd, 2017 ABQB 535

Cansearch Resources Ltd (Cansearch) was the day-to-day operator and partial owner of the Joffre Gas Battery and Compression Facility. Cansearch entered an operator’s agreement with the now bankrupt Regent Resources Ltd (Regent).

Within the agreement, there was language granting Cansearch an operator’s lien for unpaid expenses. At the time the operating agreement was executed, Cansearch did not perfect its security interest under the PPSA.

The agreement also allowed Regent to mortgage its ownership interest, which it did. Alberta Treasury Branches then loaned Regent $28M and perfected its security interest in compliance with the PPSA.

When Regent filed for bankruptcy protection, Cansearch argued its operator’s lien gave it priority, but the court nixed the argument because Cansearch did not perfect its security interest — the operator’s agreement needed a registered PPSA to be perfected.

It’s worth noting, Cansearch did abandon its claim to priority, because it failed to register the lien under the PPSA, and instead pursued a possessory lien. Unfortunately, the court determined a possessory lien would not apply either.

Never Assume an Agreement is Enough

According to Pantelis Kyriakakis, author of Operator’s Liens and the PPSA Priority Regime, “Generally, operator’s liens that arise under an agreement are consensual security interests that are subject to the framework and priority system set out in PPSA.”

Kyriakakis states operators should register a PPSA to perfect their security interest; however, many simply don’t.

“It is both possible and advisable for operators to perfect their operator’s lien by registering such security interests in accordance with the PPSA.  However, this is not common practice. As a result, operators remain unperfected secured creditors.  …in the event an operator does perfect their security interests in an operator’s lien, they will likely be in a subordinate priority position to any prior registered secured creditors.”

Take advantage of the laws that protect you! If you have the security language/granting clause within your agreement, take time to register a PPSA (or file a UCC in the US). Never assume the agreement will be sufficient in proving priority.

3-in-3: Taking a Secured Interest in Canada via the PPSA

3-in-3: Taking a Secured Interest in Canada via the PPSA

Today’s 3-in-3 features UCC Specialist, Diane Toth. Read this post to learn more about the similarities and differences of the UCC and PPSA.

Canada’s Personal Property Security Act was enacted in the early 70’s and modeled after Article 9 of the Uniform Commercial Code.  Just like a UCC filing, a properly perfected PPSA requires a signed security agreement, public registration of the Financing Statement, and search/notification of any previously secured creditors.

A UCC is filed based on where your customer is registered. What determines where a PPSA is registered?

Diane:  Under Article 9 of the UCC Financing Statement, it’s filed in the jurisdiction of where the debtor is registered, or if an individual, in their state of residence.  Under the PPSA, the security interest is registered in the jurisdiction where the chief executive office is located.

Unfortunately, the PPSA does not define chief executive office, which leaves where to file when shipping to multiple provinces open to interpretation. Under the current PPSA, if the chief executive office is in Alberta, but you’re shipping to British Columbia and Ontario, you would want to file in Alberta, British Columbia and Ontario.

The good news is the Ontario PPSA recently enacted an amendment that better defines a debtor location and this change is more in line with Article 9’s debtor location rules.  (Hopefully the remaining provinces will follow suit!)

Another exception is the province of Quebec.  Quebec has chosen not to follow the PPSA and governs its secured transactions under the Quebec Civil Code which requires an agreement called the Deed of Hypothec.

Is establishing priority in equipment different when registering a PPSA vs. filing a UCC?

Diane:  Yes, under Article 9 you have 20 days from the date of delivery of the equipment to file a UCC to maintain priority rights in your equipment. To maintain your rights under the PPSA, you only have 15 days from the date of delivery to file your PPSA. If you file on the 16th day after the equipment is delivered, you will lose your priority on that equipment which also includes the loss of right of repossession.

UCC filings are effective for 5 years (except Wyoming, which is 10 years). Is a PPSA also effective for 5 years?

Diane: No, under PPSA you choose the length of time for your security interest.  You can choose between 1 to 25 years or even infinity.  Of course, the longer the filing is effective, the more expensive the filing fee.  If you do choose to validate your PPSA for longer than 5 years, the best practice would be to conduct periodic searches to review for any changes that may affect your security interest.

If you have questions, don’t hesitate to contact us – we’re here to help!