|February 24, 2014|
Previously published on February 17, 2014
Courts have consistently emphasized that the Builders Lien Act (Act) is to be interpreted strictly as it creates a preference for one creditor over the other. The Act requires strict compliance. The recent British Columbia Supreme Court decision, Chandler v. Champion Enterprises (Canada) Inc., demonstrates, however, that this requirement may be relaxed in some circumstances. While this case turned on its own unique facts, it may also make determining the validity of certain claims of lien more difficult.
The background to the case is somewhat convoluted, involving two brothers, an absentee landlord and the landlord’s agent. The plaintiff, Richard Chandler, was engaged by his brother, Mark, who rented a property in the South Granville neighbourhood of Vancouver owned by the defendant, Champion Enterprises (Canada) Ltd. Mark entered into a rental agreement with Champion through its agent, with an addendum providing that his rent would be discounted in exchange for the tenant carrying out repairs on the house.
Mark asked his brother to perform renovations on the property. Their arrangement was that Richard would use his subcontractors to carry out the work and deliver their invoices to Mark for payment. There was no management fee or other compensation for Richard—his evidence was that he was doing this on a "brother to brother" basis. Work proceeded on the property in August and September of 2007.
Richard paid the first set of subcontractors’ invoices while his brother was in Los Angeles. It appears Mark never subsequently returned to Vancouver—he never appeared in the trial or gave evidence in any form. Richard paid the remaining subcontractors’ bills using a line of credit, stopped all work, and filed a claim of lien against the property in the amount of $65,000.
On his claim of lien, he stated that he was engaged by the owner (he claimed that his brother had represented himself as the owner), although he conceded that he did not have any contact at all with the actual owner until after filing the claim of lien. Mark was not served with the action since he could not be found, so Richard proceeded only against the owner, Champion Enterprises.
This colourful constellation of facts led the Court to consider the definition of “subcontractor” under the Act from a novel perspective. The Act defines a subcontractor as:
a person engaged by a contractor or another subcontractor to do one or more of the following in relation to an improvement:
(a) perform or provide work;
(b) supply material; . . .
The owner, Champion, argued that the plaintiff, Richard, was an agent for Champion’s tenant, Mark, for whom he provided a gratuitous service and was therefore not “engaged” pursuant to the Act. The Court dismissed this argument, finding that the term “engaged” has a non-commercial aspect, at least to the point of not requiring consideration in a contractual sense. In these circumstances, the Court was satisfied the plaintiff was engaged by the tenant and that Richard was his brother’s subcontractor for the purposes of the Act.
The implications of this finding may be difficult to predict—it is unclear what kinds of commitments, involvements or moral obligations could give rise to a subcontracting relationship under the Act.
The Court next considered Form 5, which, as the Act prescribes, requires a lien claimant to identify “the person who engaged the lien claimant, or to whom a lien claimant supplies material and who is or will become indebted to the main claimant.” In the filed Form 5, Richard identified Champion as that person although he admitted that he was never engaged in a contractual relationship with Champion or its agent.
The Court was satisfied that the claim of lien was nonetheless valid and decided that Champion was the owner of the land and was or would become indebted to Richard by operation of the Act. Further, while the plaintiff was not a material supplier pursuant to the Act, he did provide materials (such as paint) for the property. Therefore, the Court held that the answer on the Form 5 was not an error requiring extinguishment of the lien.
Ultimately, the Court’s discussion was made somewhat academic by the finding that there was no amount “owing” pursuant to the lien claim and only awarded the plaintiff $2,500 from the owner relating to Champion’s holdback requirements under the Act.
It should be noted that the Builders Lien Act provides that work done to an improvement with “the prior knowledge, but not at the request, of an owner is deemed to have been done at the request of an owner.” Landlord-owners can protect themselves from non-contracting claims, however, by filing a Notice of Interest at the appropriate Land Title Office.
This Notice advises all potential lien claimants of the owner’s interest in the land and that the owner will not be not bound by lien claims filed with respect to an improvement on the land, unless the improvement is undertaken at the express request of the owner. In this case, however, the owner did not file such a Notice of Interest.
Owners may consider filing a Notice of Interest for leased or rented properties to ensure that work undertaken by or on behalf of tenants does not form the basis for a claim of lien against that property. Without this Notice, consider the example of a tenant who fails to inform a contractor that it has been retained without the knowledge of the owner. By chance, the owner does become aware of the improvements. The tenant fails to pay for them so the contractor may have the basis for a claim of lien against the owner who failed to file a Notice of Interest.
As the Chandler case demonstrates, there may be some risk to owners whose tenants take improving the property into their own hands. A Notice of Interest may be an effective way to minimize risk—and legal fees—for renting or leasing owners.