While the modern mechanics lien may have been born in America, it has become an international sensation. Not unlike how Justin Bieber was born in Canada and has since taken the world by storm. (Belieb it or not, this is not the first time he’s come up on the blog.) The provisions and terminology differ at times, but the mechanics lien is no longer a uniquely American remedy. For this reason it is important to take note of developments in other countries in order to better understand how and why our lien law might differ. In that spirit, here is what’s going on in Canadian lien law, at least in Alberta.
The Queen’s Bench of Alberta held that once the major lien fund has been paid out, subcontractors’ lien rights become limited.
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According to Alberta’s Builders’ Lien Act, after the major lien fund has been paid lien claims may not attach to work done prior to the certificate of substantial performance. Such claims must attach to the minor lien fund or not at all. This decision limits the liability of property owners once a certificate of substantial performance has been executed and creates what is essentially a 45 day deadline from its issuance for a subcontractor to attach a lien to the major lien fund. Considering that terminology can vary, we should probably start with a primer on Alberta’s lien law terminology.
Rewind! What do these Canadian lien law terms mean?
What is a Major Lien Fund?
The amount of retainage or “holdback” that constitutes these funds are required by statute, and owners must hold back 10 percent of every payment due any contractor or supplier working on their project. Under the Builders’ Lien Act, the maximum amount an owner may be liable for in a lien action is the sum of the major and minor lien funds. When a claim has been made on a major or minor lien fund, an owner can transfer the lien by paying a sum into the court. If that sounds familiar, it comparable to bonding off a lien in the States.
A major lien fund refers to the amount of holdback that has accrued before a certificate of substantial performance has been issued by the general contractor. If no certificate is issued, all holdback remains in the Major Lien Fund. A certificate of substantial performance sounds a lot like a notice of completion, but a notice of completion does not carry quite the same weight in American lien law. In America, depending on the state, timelines for exercising lien rights relate to either the completion, substantial completion, or final furnishing.
Back to Canada! In the event that no liens have been filed, the major lien fund may be paid to the contractor 45 days after a certificate of substantial performance has been issued. For projects involving oil and gas wells, this is expanded to 90 days. Should no certificate be issued, these dates run from the completion of the project. Here’s the full text of the Alberta Builders’ Lien Act.
What is a Minor Lien Fund?
A minor lien fund refers to the amount of retainage or “holdback” that accrues after a Certificate of Substantial Performance has been issued. According to the case below, liens filed after the major lien fund has been paid may only attach to the minor lien fund.
In a recent Alberta case, a subcontractor, Twin Peaks Construction Ltd., registered a lien after the owner paid the major lien fund to Chandos Construction Ltd., the contractor. Most of the work that Twin Peaks’ claim was based on occurred before the certificate of substantial performance.
The court found that a claim for work completed before the certificate of substantial performance could only attach to the major lien fund. Because this fund had already been paid out to the contractor, Twin Peaks’ lien claims that occurred before the certificate could not attach. However, the amounts based in work that was completed after the certificate was issued could still attach to the minor lien fund.
This decision essentially creates a 45 day deadline from the time a certificate of substantial performance is issued for a subcontractor to file a lien based on work performed before the issuance of the certificate. After 45 days, an owner can pay out the major lien fund, thus barring any claims on work done prior. However, in the event that an owner takes longer than 45 days to pay the major lien fund, a subcontractor would be able to file a lien on work done before the certificate up until the major lien fund has been paid to the contractor.
This decision heavily incentivizes that owners have their contractors file a certificate of substantial performance during the project. The issuance of such a certificate and subsequent payment of the major lien fund will bar lien claims based on work done before it. Just as with their U.S. counterparts, Canadian subcontractors must pay close attention to procedural deadlines in order to preserve their lien rights.