The Top Ten Things That Go Wrong With Lien Registration
Blog Post Date: 16-Sep-2014 Author: Corbin Devlin
Missing the lien deadline – This is number one because lien rights evaporate if a lien is not registered on time. It is not always straightforward to determine the lien deadline. The Alberta Builders’ Lien Act says correcting something improperly done, or doing something omitted to be done earlier, does not extend the lien period; as a consequence, the lien period can start running before the last day of work. And a Certificate of Substantial Performance can affect the timing of lien rights.
Leaving it too late – A related but distinct problem. Although there may be good business reasons to postpone the decision to register a lien until close to the deadline, this is risky. For example, it can take some time and effort to determine the proper legal land description for some industrial and infrastructure projects. And sometimes the registry office will reject lien registrations for unexpected technical reasons; when this happens on the last day of the lien period, it may be too late to submit another lien for registration.
Liening the wrong lands – It is often necessary to rely on information supplied by others to determine the legal description of the lands. Experience tells us such information is not always reliable.
Liening the wrong interest in land – If the work is being performed for a tenant, or anyone other than the true (fee simple) owner of the lands, it is necessary to clearly indicate on the Statement of Lien not only the proper description of the lands, but also which interest in those lands is being liened. (See Marco Baldasero’s blog post of 10-Sep-2014 for additional comment on lien rights when work is done for a tenant.)
Missing a transfer of lands – A sale of the project lands during construction can jeopardize lien rights. Unregistered lien rights may be lost when the title is transferred, unless the purchaser meets the statutory test to qualify as an “owner” for lien purposes.
Naming the wrong owner – A simple but too common error. For example, it is quite common for a contractor to think that the company they are dealing with is the landowner when in fact the lands are owned by a separate, related company.
Failing to fully exercise lien rights – Lien rights may extend to multiple parcels of land associated with an integrated project: Smoky River Coal Ltd. (Re), 1999 ABQB 492. Liens may attach to minerals if the construction work relates to the recovery of a mineral. But these issues have to be addressed before the lien deadline.
Claiming too little – It is another common mistake to register a Statement of Lien for only the amount currently due. The holdback and other contract amounts not yet due can and usually should be included in a lien. And interest may be claimed in a Statement of Lien if the relevant contract provides for it.
Failing to consider the business consequences of lien registration – Registering a lien can disrupt project financing and damage customer relations. I sometimes see lien claimants scramble to discharge the lien they just registered, when they realize the real world repercussions of lien registration.
Ignoring lien rights – On the flip side, lien rights are often the only form of security for payment available to a contractor, subcontractor or supplier. In the right circumstances, lien rights are invaluable and must not be overlooked.