A contractor may register a construction lien on a property to obtain payment for their unpaid services or materials. While registering liens is generally straightforward, complexities arise when the property's fee simple registered owner is not the party who retained the contractor registering the lien. In short, the registered owner may not be an "owner" under the lien legislation, to give rise to a valid lien. In commercial construction, determining the validity of such a lien against a fee simple property owner's interest in lands, when the work is performed for a tenant, is a common issue.
Courts have consistently ruled that for a lien to be valid against a landlord's fee simple interest, where the contract is between the contractor and the tenant, the landlord must have requested the work and received a direct benefit from it. A landlord's active participation is not enough.
As the property owner,
The central question was whether
The Applications Judge initially ruled
What the Court Said
To consider a landlord as an "owner" under the Act, the Court assessed two criteria: firstly, whether the landlord had expressly or impliedly requested the execution of the work, and secondly, if the work provided a direct benefit to the landlord upon completion.
The Court found that
However, the Court held that
Takeaways
A contractor performing tenant improvement work should do so with caution, as it can often be left in a position without any valid lien rights if the tenant fails to pay. A contractor can always lien the tenant's leasehold interest in the lands, but if the tenant has no funds and the work is incomplete, that leasehold interest is likely worthless.
On the flip side, liening the landlord's fee simple interest is also risky, as demonstrated by this case. Even if the landlord actively participates in the construction, this does not satisfy the "direct benefit" requirement of the definition of owner in the Act. This case serves as a reminder for both contractors and landlords to be aware of their potential liabilities and rights in tenant-initiated construction projects.
A contractor can try to protect itself by providing a notice to the landlord under section 15(1) of the Act. If such a notice is sent, the landlord must respond within 5 days, otherwise the landlord's fee simple interest can be validly liened by the contractor. But if the landlord disputes being responsible for that tenant work, the contractor would then need to bring the landlord under the definition of "owner" under the Act to validly lien the fee simple interest.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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