In Chandos Construction Ltd. v. Twin Peaks Construction Ltd. (Chandos Construction), the Court of Queen’s Bench of Alberta (Court) held that once the certificate of substantial performance (Certificate) is issued and major lien fund is paid out, subcontractors and suppliers can no longer claim a lien under the Alberta Builders’ Lien Act (Act) for work done or materials supplied before the Certificate was issued. Chandos Construction limits owners’ liability and is the first reported decision in Alberta dealing directly with this issue.
Owners should therefore ask contractors to issue Certificates as they can significantly limit their liability under the Act. Subcontractors and suppliers should be aware that they have 45 days (or in the case of an oil or gas well, 90 days) from the date on which a Certificate is issued to register a lien for work done or materials supplied prior to issuance of the Certificate.
MAJOR VS. MINOR LIEN FUNDS
Sections 18 and 23 of the Act require an owner to hold back 10 per cent of each payment due to any contractor or supplier hired to improve its land. This is commonly referred to as the “holdback.”
If a Certificate is issued:
- A “major lien fund” is formed by the holdback on payments for work done or materials supplied before the Certificate is issued
- A “minor lien fund” is formed by the holdback on payments for work done or materials supplied after the Certificate is issued
If no Certificate is issued, no minor lien fund arises, and all holdback forms the major lien fund.
If no liens have been registered, the owner may pay the major lien fund to the contractor 45 days (or in the case of an oil or gas well, 90 days) from the date on which the Certificate is issued, or if no Certificate is issued, the contract is completed.
An owner is liable under the Act for no more than the major lien fund and, if it arises, the minor lien fund. An owner may discharge a lien registered by a party it did not contract with directly by paying some or the entire appropriate lien fund into court. Chandos Construction incentivizes owners to ensure that a Certificate is issued and to release the major lien fund as soon as possible.
In Chandos Construction, a Certificate was issued and posted, and the owner paid the major lien fund to the general contractor, Chandos Construction Ltd. (Chandos). One of Chandos’s subcontractors, Twin Peaks Construction Ltd. (Twin Peaks), then registered a lien. The majority of the work that Twin Peaks claimed under its lien was performed before the Certificate was issued.
Master A. R. Robertson, Q.C. held that a lien registered for work done before the Certificate was issued can only attach against the major lien fund, not the minor lien fund. As the major lien fund had been paid to Chandos, there was nothing that portion of the lien relating to the work done prior to the issuance of the Certificate could attach to. The Court directed that Twin Peaks discharge its lien on the condition that the owner pay into court only the amount Twin Peaks claimed for work done after the Certificate was issued.
Master Robertson noted that while Twin Peaks did not have a valid lien for work done before the Certificate was issued, it had other remedies:
- Twin Peaks could make a breach of contract claim against Chandos
- Twin Peaks could claim against Chandos under section 22 of the Act, which provides that when a contractor receives payment from the owner after a Certificate is issued, it holds that payment in trust for any subcontractors or suppliers on the project to whom the contractor owes money
Twin Peaks has not yet appealed this decision.
Pursuant to Chandos Construction, subcontractors and suppliers have 45 days (or in the case of an oil or gas well, 90 days) from the date on which a Certificate is issued to register a lien for work done or materials supplied prior to issuance of the Certificate, even if their work is not yet complete. If this is not done, and the owner pays out the major lien fund, any lien subsequently registered for such work will be invalid.
Owners should therefore consider requiring contractors to issue Certificates, as they can significantly limit owners’ liability under the Act. Additionally, owners (or contractors required to remove liens on owners’ behalf) should ensure that when they apply to pay money into court to remove a lien registered after the Certificate was issued, there is evidence before the court on when the work was performed or materials supplied to ensure that they do not pay more than necessary into court.