Builders Lien Limits and Construction

In the construction sector contractors and customers alike all take a certain amount of risk, due to the nature and contract arrangements of the industry. Many contractors rely on their ability to file a mechanic's lien, as a method of securing payment for services provided by the contractor. It is important for all contractors to remember that they cannot always rely upon their lien rights.

In Alberta recently, a contractor discovered this. A property owner entered into an agreement to sell its lands. The prospective purchaser, who was going to develop the lands, hired E. Gruben's Transport Ltd. to build roads on the property. Unfortunately, the contractor was not paid. E. Gruben's Transport Ltd. filed a lien on the property.

E. Gruben's Transport has been a strong supporter and members of the NWT Construction Association for many years. James Lay is the Vice President of E. Grubens Transport Ltd. and said, "our company is very disappointed with the Alberta Court of King's Bench ruling on this case, to the lay businessman reading our argument, despite the failure of the developer, it was clear our claim should have remained attached to the land as the improvements were completed. It is always unfortunate when a contractor completes work for someone based on straightforward work agreements and trust and they end up not paid. We had a work agreement in place, the original land owners knew the land was going to be divided and developed, and yet our lien was dismissed on the technicality that the land owner did not request the work directly, and yet they now own the improvements."

In addition the economic circumstances of the day did play a role with the projects progress. However it seems in today's current legal environment, contractors need an iron clad contract that was developed by a team of specialized lawyers with a crystal ball, to truly eliminate risk. All parties were fully informed and involved in the progress of this project, even though the prospective purchaser was the primary customer, as a result, the contractor's lien was dismissed according to Mr. Lay. The advice here is to find out who actually owns the land and if it is not the person you are dealing with get your project work acknowledged in writing by the landowner.

"It is important that contractors not rely only on their lien rights to ensure payment." said Ed Gullberg of McLennan Ross LLP, lawyers for the NWT Construction Association. "This same situation could occur in the NWT. Contractors, when starting a project, should make sure that the party who is engaging them to do work actually has an interest in the property where the work is done. If not, the contractor runs the risk of not having any lien rights."

Decisions such as these contribute to the growing legal complexities in the construction sector. All of these complexities not only add to the overall costs of finished products, but also the risks associated with projects - especially larger ones.

Phil Moon Son is the executive director of the NWT Construction Association and can be reached by email at director@nwt.ca