Reducing the Security Required to Cancel a Builders Lien

The Dispute

A professional practice leased commercial premises and hired a contractor to renovate them before opening. The work ran badly late, and the practice did not get its occupancy permit until more than two years after it had expected to move in. By then it had paid the contractor far more than it could account for spending, and when the contractor filed a lien against the building the landlord wanted it off title.

The Parties’ Positions

The tenant and its corporation applied to cancel the claim of lien outright under section 25(2)(b) of the Builders Lien Act, which permits cancellation where a lien is vexatious, frivolous or an abuse of process. In the alternative they sought cancellation under section 24, on the posting of nominal security. They pressed the arithmetic disclosed by the claimant’s own material, which put the contractor’s expenditures on subcontracts and materials at roughly half of what had already been paid to it, with the lien claiming a further sum on top. They drew on Q West for the proposition that profit is not lienable under a fixed price contract, although it may be where the contract is on a cost plus footing.

The contractor opposed the application on both branches, and its claim rested on what the court described as a number of writings which might or might not constitute contracts or addendums to contracts. Those writings were accompanied by oral assertions about additions, some of which had been signed and some of which had not. On that material the total contract value could be placed anywhere across a range of several hundred thousand dollars, depending on which of the writings and the accompanying assertions were accepted as contractually binding. The contractor explained the pace of the work by reference to water seepage and like causes, matters the court observed would have to be addressed at trial.

The Court’s Decision

The court refused the application under section 25, on the ground that the section applies only where it is free and clearly evident that a claim is frivolous and vexatious, and it could not say that of this claim. It declined to determine what the contract was, or whether it was fixed price or cost plus, because doing so would mean weighing evidence and making final determinations. On section 24 it applied Centura, under which an applicant must show there is no prospect that a lien claim or a component of it will succeed, and it could not say this claim was bound to fail.

It cancelled the lien and the certificate of pending litigation on security equal to its face value, declined the penalty sought, and ordered the applicants’ costs in the cause. The tenant cleared the landlord’s title and funded the full claim throughout the action.

Key Lessons for Owners and Lien Claimants

• Record the contract and every change in one executed document. Lien rights can survive the absence of a written contract, and where the writings and the oral assertions cannot be reconciled the court may decline to determine which binds, so the caution operates in favour of the claimant.
• Do not assume that a gap between payments made and a claimant’s stated costs will reduce security. The claimant’s own material put its expenditures well below the sums already paid, and the court observed that this clearly does not end the matter.
• Settle whether the contract is fixed price or cost plus before the work begins. Whether profit forms part of a lienable claim can turn on that characterization, and a record that will not answer the question leaves the point to trial.
• Plan for security at the lien’s full face value. Section 24(3) permits the court to set security below the amount of the claim, but an applicant in builders lien proceedings must first satisfy it that the claim or a component is bound to fail on the material filed.

The outcome of this application turned on the state of the contract documents and on the material before the court when it was heard. A similar application may resolve differently.

ATAC LAW acts for owners, tenants, contractors and suppliers in builders lien disputes in British Columbia, from the filing of a claim of lien through to trial.

Mike C. Stewart acted for the applicants on the application to cancel the claim of lien.