When an owner or contractor seeks to remove a claim of lien from title to land by securing the lien with money in place of the land, a debate sometimes arises as to whether the claim of lien has been inflated. In general, a lien should be secured for its face value.
The BC Court of Appeal has recently confirmed that a judge must order that security be posted for a claim of lien (or a component of it) as long as there is some evidence to support the claim (Centura Building Systems (2013) Ltd. v. 601 Main Partnership, 2018 BCCA 172). That means the lien must be secured unless the person seeking to reduce the security can show it is obvious the claim (or component) is bound to fail. Further, in assessing the appropriate amount of security for the lien, the court should exercise caution in favour of the lien claimant.
Where appropriate, the party securing the lien can apply to the court to post security in a lower amount. Owners considering applying to reduce security for a claim of lien should first confirm that evidence exists to show that the lien claim includes items that are obviously not lienable, such as interest or lost profits on other jobs, or that the contractor has obviously inflated the amounts of otherwise lienable claims.
A court will examine the evidence and if there is a dispute over the value of the lien that merits a trial, the lien will likely be secured for the full amount. That is the purpose of the lien remedy: to secure the claim until the dispute is resolved. Where the cost of securing a large lien with cash is prohibitive, a lien bond may be a more attractive option.
Lien claimants should continue to ensure that the components of their lien claims are squarely based on their records and their contracts. If a lien claimant records costs that are not properly the subject of a lien, or makes an obviously meritless claim, the courts can and will reduce or cancel security, impose adverse costs awards, or even award damages to the owner. It is also an offence, punishable by fine, to knowingly file a claim of lien containing a false statement.
A lien claim is for “the price of the work and material, to the extent that the price remains unpaid.” We list below some examples of items that have been found in prior cases to be lienable and not lienable. Please note that whether a specific item is or is not lienable will depend on the particular circumstances of a case. Consult a lawyer if you are preparing a claim of lien.
Valid
- The price of work not yet performed
- Accrued, unpaid holdback
- Taxes and bond premiums forming part of the price
- Legitimate claims for performance bonus or extra work, to the extent permitted by the contract
- Legitimate extra costs incurred to perform the work as a result of the owner’s delay, to the extent permitted by the contract
Not valid
- Unpaid invoices
- Interest on unpaid invoices
- Lost profit on other jobs
- Extra work not requested by the owner or provided for under the contract
- Costs incurred to remedy one’s own deficient work
Krista Johanson and Lindsey von Bloedau practice construction law at Borden Ladner Gervais LLP. This article is for information purposes only and may not be relied on for legal advice. Please send comments to editor@on-sitemag.com.
This article first appeared in the August 2018 issue of On-Site. You can check out the full issue here.
