(a) Introduction
Lien work can be stressful. All too often, lien claimants appear at the last minute asking for a lien to be registered to protect their interest. You’re charged not only with preparing and filing the lien, but also, and most importantly, identifying the proper lands and the proper interest to lien, sometimes based on limited information from the lien claimant. This can be extra challenging when dealing with liens against leasehold interests. Should you lien the leasehold interest, the fee simple interest, or both? If you lien the wrong interest, can you fix it later? The Alberta Court of Queen’s Bench dealt with these very questions in Synergy Projects (Destiny) Ltd v Destiny Bioscience Global Corp, 2022 ABQB 384 (“Synergy”).
(b) Background
Synergy involved a lien by Smart Grow Pros, LLC (“Smart Grow”) on a project being constructed south of Edmonton. 718721 Alberta Ltd (“718”) owned the fee simple interest in the project lands. Destiny Bioscience Global Corp (“Destiny”) had a lease with 718. Destiny was the project “owner” for the purposes of the Builders’ Lien Act (the “BLA”). Destiny retained Smart Grow to provide consultant services on the project. Destiny also retained Synergy Projects (Destiny) Ltd. (“Synergy”) as the contractor on the project. Synergy, in turn, retained a number of subcontractors.
Problems arose mid-project and Synergy, Smart Grow and a number of other parties registered liens. Out of an abundance of caution, most lien claimants registered against Destiny’s leasehold interest and 718’s fee simple interest. Smart Grow liened 718’s fee simple interest, but not Destiny’s leasehold interest. Destiny went into receivership. A court-approved procedure was set whereby the Receiver would review all liens and determine which should be allowed (or not) and in what amount. The Receiver disallowed Smart Grow’s lien on the basis that it should have been registered against Destiny’s leasehold interest, not 718’s fee simple interest.
Smart Grow disagreed with the Receiver and brought a motion to have its lien declared valid based on two alternative arguments: (1) the lien as against 718’s interest is valid because 718 met the definition of “owner” in the BLA; or (2) the lien should be “cured” under Section 37 of the BLA for substantial compliance with Section 34. The Court found against Smart Grow on both arguments. In doing so, the Court gave a detailed and helpful summary of the case authorities dealing with when a landlord will meet the definition of “owner” and what defects can (and can’t) be cured under Section 37 of the BLA.
(c) When will a landlord be an “owner” under the BLA?
Section 1(j) of the BLA 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 […].” Smart Grow first argued that 718 expressly requested the work be done, relying entirely on sections of the lease which they argued obliged Destiny to construct the building on the leased lands, which by extension meant 718 requested Smart Grow provide its services to assist in the construction. This argument was dismissed.
Next, Smart Grow argued 718 impliedly requested the work be done, again relying solely on the provisions of the lease, which required a number of things, including Destiny getting 718’s approval of working drawings, plans and specifications and submitting permits and licenses to 718 for approval before starting the work. The Court disagreed.
In support of its finding, the Court noted that payment of rent by Destiny wasn’t tied to construction, rather it was payable whether buildings were constructed at all. It further noted that Destiny’s rent wasn’t linked to its revenues or profit, and Destiny was bound by the lease regardless of whether construction took place. Further, if 718 failed to give required approvals under the lease, rent was still payable. Destiny was at liberty under the lease to decide what building or buildings to construct. Although the lease contained a target date by which Destiny would try to be in operation, the date was aspirational and was not a contractual commitment. Further, the lease authorized Destiny to employ a contractor and others to perform the work, and Destiny wasn’t performing the work itself.
Smart Grow relied on the 1984 decision of Smith, J. in Consolidated Gypsum Supply v BLR Construction, (1984) 55 AR 340 (“Consolidated Gypsum”) in support of its argument that 718 made an implied request for the work to be done. However, the Court referenced Graesser, J.’s 2019 decision in Royal Bank of Canada v 1679775 Alberta Ltd, 2019 ABQB 139, agreeing with Graesser, J. that Consolidated Gypsum “no longer represents the state of the law in Alberta” [para.40]. Lema, J. said the “mere fact of Destiny constructing” something on the lands did not mean 718 was “impliedly […] requesting any goods or services” [para.43].
The Court further noted that 718 wasn’t actively involved in construction. Citing the Alberta Court of Appeal decision in Royal Trust Corp of Canada v Bengert Construction Ltd, 1988 ABCA 58, Lema, J. said a request must involve something more than “mere knowledge and consent;” it must be an “active or positive proposal,” as opposed to “mere passivity or acquiescence” [para.45].
(d)Can the lien be cured under the BLA?
The Court then considered whether Smart Grow’s error could be cured under Section 37 of the BLA. The Court held the lien could not be cured because in order to do so, there must be “substantial compliance” with Section 34, when in fact there was “complete non-compliance” by Smart Grow [para.82-84]. Smart Grow’s lien was missing both the correct interest and the correct interest holder. This was not a “forgivable shortcoming” [para.84]. Smart Grow meant to lien 718’s fee simple interest, which is precisely what they did.
In coming to his decision, Lema, J. cited a vast body of case authority dealing with registrations against the wrong interest and the various ways in which these are decided, depending on the facts. However, he stated that this was not a situation where Smart Grow had attempted to comply when it registered its lien. Rather, they intended to lien 718’s fee simple interest; it was simply the wrong interest.
The Court commented that “Section 37 exists to forgive less-than-perfect compliance with the BLA’s registration requirements. It does not exist to waive complete non-compliance” [para.113-114] or to “authorize a complete ‘track switch’ i.e. conversion of a lien aimed at one party and one interest into one aimed at another party and interest” [para.118].
(e) Conclusion
The facts in Synergy demonstrate the importance of understanding the BLA (now the Prompt Payment and Construction Lien Act) in order to ensure all bases are covered when a lien claimant comes to counsel to have a lien registered.
Catriona Otto-Johnston is a partner at Rose LLP.