A Builders’ Lien is a helpful tool for many parties involved in Alberta’s construction industry. This legal tool allows a general contractor, subcontractor or supplier to register a lien against title to the property on which they provided services, labour, or supplies but they did not receive payment for.
In cases of residential properties, the property owner is typically the person who orders work to be done. However, there are instances, particularly in commercial landlord and tenant relationships, when a tenant may hire a contractor to perform work on their rented property, and the landlord may or may not be involved in the project. In a recent decision from the Court of King’s Bench of Alberta, a contractor sought to register a builders’ lien against the owner of a commercial property, as the tenant had hired them to perform work, yet failed to provide payment for the work before vacating the premises.
Contractor hired to do work in commercial space
The case of Xemex Contracting Inc v Koor Energy Ltd, 2023 ABKB 577 came before the Court of King’s Bench on appeal from the Application Judge’s decision. The defendant, Aspen Properties (Northland Place) Ltd., (“Aspen”) in the original matter had been sued by the plaintiff/respondent, Xemex Contracting Inc, (“Xemex”) regarding work Xemex had performed for a commercial tenant who rented commercial premises from Aspen. Xemex claimed that they had not been paid for the completed work. The tenant, Koor Energy Ltd., (“Koor”) had requested Xemex to perform work on the space, but failed to take occupancy of the space.
The key issue before the Court was whether Aspen’s ownership of the building can be subject to a builders’ lien. In order to answer that question, the Court had to determine whether Aspen should be considered an “owner” under the Prompt Payment and Construction Lien Act. The Prompt Payment and Construction Lien Act defines an “owner” as:
“a person having an estate or interest in land at whose request, express or implied, and
i. on whose credit,
ii. on whose behalf,
iii. with whose privity and consent, or
iv. for whose direct benefit
work is done on or material is furnished for an improvement to the land and includes all persons claiming under the owner whose rights are acquired after commencement of the work or the furnishing of the material.”
The Applications Judge ruled that Aspen was an “owner” since the work was completed at their request and they benefited from the work as they own the property. However, there was no indication in the decision that Aspen had requested the work. A key factor in the Court’s decision was that Aspen had monitored the project to ensure that it would not negatively impact the building or other tenants. This monitoring was primarily done by Aspen providing Xemex with a guide book containing particular rules to follow while the work was completed. Some of these rules related to hours or work, elevator use, waste disposal, safety conditions, among other things. Xemex claimed that Aspen assigned three employees to monitor the project, one of whom acted as a facilitator at the kick-off meeting.
Aspen acknowledged that although this was true, the purpose of their involvement and any imposed restrictions was not to encourage or facilitate the project, but rather to protect itself, the building, and other commercial tenants from potentially adverse implications of the project.
Did the landlord have any direct benefit from the project?
The Applications Judge was satisfied that Aspen became an “owner” of the project because of the controls it put in place for the project. However, the Court of King’s Bench noted that the lower court’s decision failed to consider whether this behaviour was relevant to the ownership issue.
The Court of King’s Bench emphasizes that various criteria must be met in order to establish ownership for the purpose of a builders’ lien. A key consideration was whether the landlord had directly benefited from the work that was done. While the Court was satisfied that Aspen was aware of and involved in the project, and consented to the work, it was unclear whether they directly benefited from it.
The lease between Aspen and Koor allowed and encouraged Koor to renovate the space. However, in order for Aspen to be the owner of the project, the Court determined that they were required to enjoy some “immediate benefit” from that work. Further, the Court emphasized that mere legal ownership of a property and possession of it upon the termination of a lease is not enough to result in “direct benefit.” Instead, the Court found that this is more likely to lead to an “indirect” benefit, as “more is required, such as participation by the landlord in increased revenue from the demolished premises, or improvement of areas beyond those leased in order for a direct benefit to be found.”
Additionally, the Court found that the renovation project was left in a state of disarray and was not fully completed. Therefore, the office space was not attractive to any potential tenants that Aspen could lease to, and making the office space marketable would incur additional expenses. For these reasons, the Court allowed the appeal and declared the builders’ lien invalid.
Contact DBH Law in Calgary for Assistance With Your Construction Project and Dispute Resolution
The team of professional and experienced construction litigation lawyers at DBH Law have extensive experience and technical knowledge to provide you with the practical legal advice needed to navigate the modern construction industry. We understand that when numerous parties are involved in a construction project, matters can quickly become complicated, particularly when it comes to disputes over non-payment. Contact us online or by phone at 403.252.9937 to schedule a consultation with one of our lawyers.