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.
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.