Lessons in Construction Lien Rights: Landlords Must Be Cautious of Their Role in Tenant Renovations
A recent decision by the Court of Appeal of Alberta has provided helpful guidance on when a landlord may, or may not, be on the hook for construction liens resulting from renovations requested and undertaken by their tenant.
While there are no “bright lines” for when a landlord will be liable, the decision of Xemex Contracting Inc. v Aspen Properties (Northland Place) Ltd., 2025 ABCA 49, provides a data point that may help inform the future behaviour of landlords in similar scenarios.
Background
Koor Energy Ltd. (the “Tenant”) leased a space from Aspen Properties (Northland Place) Ltd. (the “Landlord”) in a small building in downtown Calgary that housed commercial and office tenants. The Tenant then contracted with Xemex Contracting Inc. (the “Builder”) to have the space renovated to better meet their needs. Before the renovations began, the Landlord, having concern for possible impacts on the building and on other tenants, issued a comprehensive construction manual to the Builder, who in turn signed an acknowledgement of the same, and agreed to indemnify the Landlord if needed.
In addition to the manual, the Landlord assigned employees to liaise with the Builder, reviewed and approved plans, conducted walkthroughs, reviewed bids, permits, change orders and invoices, and had the Builder sign a contract accepting liability for OHSA obligations. At some point, the Tenant failed to make payments due to the Builder, who then ceased work. The Tenant never took occupancy of the space, and left the premises in a state of disarray.
When the Tenant failed to make the necessary payments, the Builder registered a builder’s lien against the building (i.e. the fee simple title, that is to say the owner’s interest in the land) and brought an application before the court to have the lien declared valid. The Applications Judge weighed the evidence and concluded that as the Landlord met the definition of “owner” within the Builder’s Lien Act the lien was valid. The decision of the Applications Judge was then appealed, first to a King’s Bench Judge and then to the Alberta Court of Appeal.
The Law
The Builder’s Lien Act, as it was then known, now the Prompt Payment and Construction Lien Act, operates so that a landlord’s fee simple interest in land can be subject to a lien where that landlord meets the definition of an “owner.” The definition of “owner” has three components, the first of which is that a person must have an interest in the land. Second, that person must have expressly or impliedly requested that the work be done on the land, or that materials be furnished to improve the land. And, third, the work must have been done, or material furnished, on that person’s credit, on their behalf, with their privity and consent, or for their direct benefit.
Judicial History
The Applications Judge’s decision was based on a finding that the Landlord had implicitly requested the work, as they had more than just knowledge that the renovations were taking place; the Landlord had provided inducements for leasehold improvements, and had taken on some approval and monitoring activities. Additionally, the Applications Judge found that the Landlord had benefited directly from the renovations.
The decision of the Applications Judge was appealed by the Landlord who argued that the protocols and procedures in the construction manual were aimed at ensuring the renovations did not negatively impact the building, other tenants, or themselves, and was not directed at the tenant improvements. The Landlord also noted that they did not approve plans other than those pertaining to work that would affect the building or other tenants, and never conducted inspections nor gave specific directions to the Builder.
The Court of King’s Bench, hearing the appeal, agreed with the Applications Judge in regard to the second aspect of the ownership test, the Landlord’s active participation in the renovation was sufficient to find that they implicitly requested the Builder perform the work.
Turning to the third component of the test, the Court of King’s Bench asked whether the Landlord had received a direct benefit from the renovation. In reviewing previous decisions the Court noted that the Landlord’s receipt of the improved space at the end of the lease may be an indirect benefit, but for a direct benefit to be found there must be more, such as increased revenue from the premises or improvements to areas beyond the leased space.
As the renovation project was not complete, was left in a state of disarray, and would cost considerable money to rectify, the Court of King’s Bench determined that the Landlord had not received a direct benefit, but an indirect benefit, and so did not meet the definition of “owner.” As such, the lien was declared invalid.
The Builder appealed the decision of the Court of King’s Bench to the Court of Appeal of Alberta, arguing that the Judge had erred by finding no direct benefit, or alternatively the Judge had failed to consider whether the renovations were done with the Landlord’s privity and consent. First, the Court noted that some degree of Landlord participation in leasehold improvements was the norm, and this did not mean that the improvements were for the Landlord’s direct benefit. Second, the Court held that the Landlord’s agreement with the Builder was an act undertaken to distance the Landlord from risk and responsibility and was not a direct dealing that could be used to find privity and consent. As such the appeal was dismissed.
Takeaways
- In certain circumstances, work done for a tenant may give rise to lien rights against the fee simple title (i.e. the interest of the owner of the land). The test is whether the landlord meets the statutory definition of “owner” set out above. This is very fact specific.
- Where a landlord is left with incomplete improvements that will require substantial costs to complete, it may be found that the Landlord did not receive a “direct benefit.” Legal ownership of the premises, and the reversionary right to repossess the improved space upon termination of the lease, may not be sufficient to establish a “direct benefit” for the landlord.
- “Privity and consent” may not be found where a landlord’s participation in a renovation is limited to ensuring the renovations are done in an orderly and safe manner, as these actions may not be sufficient to achieve “direct dealing.”
- Where a landlord receives increased revenue from an improved lease space, or where renovations lead to improved common spaces, a “direct benefit” may be found.
- Note that work done for a tenant will normally give rise to lien rights against the tenant’s interest in the lands (i.e. the lease). In some circumstances, the same work will give rise to liens against both the fee simple title and the lease. This was not in issue in the case discussed here, as the Builder liened only the fee simple title.
- Note also that there is a mechanism (see s. 15 of the PPCLA) to permit a lien for work done for a tenant to attach the landlord’s interest where the lien claimant gives advance notice to the landlord. This mechanism was not used and was not at issue in the case discussed here.