Municipal Reserve Lands – Validity of Lien Disputed Post-Payment of Security

Have you wondered whether you can dispute the validity of a lien after alternate security has been paid into Court?  The Court of King's Bench recently confirmed that municipal and/or school reserve lands are not lienable. The liens at issue were determined to be invalid after security was posted into Court for payment of the liens.

Determination of Validity, Post-Security

The Court in Golden Triangle Construction Management Inc v Nuwest Interior Systems Inc, 2019 ABQB 292, was tasked with determining whether, after a contractor has caused liens to be discharged by posting alternate security, the contractor has abandoned its ability to later challenge the validity of those liens.

Four liens were registered by subcontractors against lands designated as “Municipal and School Reserve” and “Municipal Reserve". Pursuant to section 48 of the Builders’ Lien Act, the general contractor, Golden Triangle, posted security for payment of the liens which were then discharged from title.

Section 48 of the Builders’ Lien Act states the Court may order that the registration of a lien be removed from the title to the land concerned where security is given, or payment is made, into court for the amount of the claim. Where this is the case, the money or security stands in the place of the land. But what does “stands in the place of the land” mean?

The Court, like many of us, found the wording of the legislation to be ambiguous. “Stands in the place of the land” was narrowed down to mean one of two things:
1.      Once the lien is discharged from title, the Court can consider the nature of the land (in this case, being a municipal reserve) in evaluating the validity of the lien; or
2.      The security held by the Court was to be treated as if it were proceeds from the sale of the land.

The Court ultimately found the former interpretation to be more appropriate, as it better aligns with fairness to the parties and upholds the objective of the Builders’ Lien Act – protecting those supplying labour and materials, and limiting the liability of owners. This interpretation clarifies that an owner or contractor can post security without abandoning any argument with respect to the validity of the lien. This allows for the speedy clearing of title upon posting alternate security and resumption of progress payments.

Municipal/School Reserves Are Not Lienable

After finding that the validity of the liens could be determined even after the liens were discharged from title, the Court confirmed the Alberta Court of Appeal’s decision in McFarlane Oil Co v Sturgeon (Municipal District No. 90), 1990 ABCA72.  McFarlane held that liens registered against reserve lands are unenforceable as the Planning Act takes away the Court’s power to grant an order for sale of such lands.

The purpose of the Planning Act is to provide orderly planning and to maintain and improve the quality of the physical environment, without infringing on the rights of individuals except to the extent that is necessary for the greater public interest.  Although the Planning Act will permit the sale of municipal reserve lands, the general scheme of the statute with respect to reserve lands shields the lands from a Court ordered forced sale.  A statutory procedure is in place governing the disposal of reserve lands and the purposes for which the proceeds will be employed. The Planning Act was replaced in 1994 by Part 17 of the Municipal Government Act, but the principles stated in the McFarlane decision remain valid.

In comparison, the Builders’ Lien Act creates a charge on land as security for services rendered or materials furnished.  This, in effect, creates an interest in the land which can be sold and vested by the Court, unless alternate security is paid into Court. Where payment is made into Court, security other than the lands exist to satisfy potential claims. 

Considering this, the Court confirmed that the validity of a lien can be assessed, notwithstanding security or payment is made to discharge the lien. The Court then determined that Nuwest’s lien was invalid because, as determined by the Court of Appeal in McFarlane, municipal reserve lands are not lienable. The security posted by Golden Triangle was ordered to be returned to them.

Considering the significant number of school construction and renovation projects in Alberta,  it is noteworthy that some but not all schools are built on municipal reserve lands; i.e. some school projects may be lienable and some may not. Perhaps future case will consider if an agreement for sale of lands from a municipality to a school board is an interest in land that can be liened.