Those involved in construction projects often face the necessity to remove liens filed pursuant to the Builders Lien Act. Sometimes this is to enable mortgage funds or construction draws to flow, and other times in order to simply remove inflated, out of time, or fraudulent liens. Despite this common situation, it seems rare that people understand how it is accomplished. Of course, agreement could be reached by way of negotiation, but what happens where there is insufficient time or motivation to make a deal?
Typically, there are four different ways/circumstances in which liens can be removed from title unilaterally.
- Payment into Court (the lesser of):
- Total of all liens (basically acknowledging the obligation to pay them)
- Amount owing to person above lien claimants (at minimum – 10% holdback).
- Payment of Security Into Court (the total amount of liens, plus usually 10 to 15% as security for costs, which allows the parties to argue about the legitimacy/amount of the lien claims later). Sometimes this posting of security is accomplished by payment into a lawyer’s trust account, on well-defined terms and conditions, to avoid the costs of a court application.
- Application to Remove Liens Due to Lapse of Time. If lien claimants fail to commence legal action and file Certificate of Pending Litigation against the land within:
- 21 days of notice mailed to lien claimants to commence action
- 1 year from date lien was filed.
- Summary Determination by Court that the lien was:
- Filed out of time
- Satisfied or dismisse
- Filed against the wrong land
- Is “vexatious, frivolous or an abuse of process”.
Recently a court case dealt with a failure to follow one of these prescribed four routes. In that case, a homeowner, faced with a situation of an insolvent builder, and anxious to have his title cleared in order to obtain a mortgage draw, begrudgingly paid the amount of a material supplier’s lien in return for a discharge of that lien. Later it was determined that the material supplier’s lien had claimed amounts for interest on the builder’s outstanding debt, legal fees and other service charges. It should be noted that the Builders Lien Act only permits liens for actual work and material supplied in relation to an improvement on the land. Interest, legal fees and other charges/damages are not properly the subject of a lien (although they may be sued for separately). The homeowner, upon finding out about these non-lienable charges, sued for return of the “overpayment” on the lien. The judge held it was too late, as the money had been paid in return for a discharge. Further, the Court determined that the lien was not an abuse of process (it was neither “completely devoid of any legal foundation” or “legal blackmail”), did not constitute unjust enrichment, nor had the homeowner paid the money “under protest”.
The lesson learned from this case is to follow the “beaten track” when it comes to getting rid of unwanted liens. While this is a relatively straightforward process, although not always inexpensive, it will necessitate getting good legal advice.
This article was written by Robert G. Kuhn, a lawyer who practices in construction law at the law firm of Kuhn LLP. It is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have questions or comments about this case or other construction law matters, please contact us at 604-864-8877.