How Not to Use a Claim of Builders’ Lien

A builders’ lien can be a powerful tool for contractors to protect themselves from being unpaid for their work. However, a lien is used improperly if it attempts to extract additional payments that are not actually owed to the contractor. In the case of Atlas Painting & Restorations Ltd. v. 501 Robson Residential Partnership, a painting contractor narrowly avoided being penalized by the court for filing what turned out to be a significantly inflated lien claim.

The Facts
In or around October 2013, 501 Robson Residential Partnership (the “Owner”) entered into a contract (the “Contract”) with Atlas Painting & Restorations Ltd. (the “Contractor”) to paint portions of a residential-commercial tower in downtown Vancouver. The fixed contract price agreed to by the Owner and the Contractor was $1,522,000.00.

In November 2015, differences arose between the parties, and the Owner put the Contractor on Default under the Contract. By late December 2015, the Owner had terminated the Contract. On the same day, the Contractor filed a lien claim for approximately $1,215,000.00, despite the fact that much of the fixed contract price had already been paid by the Owner.

After the lien was filed, the parties began to negotiate the proper amount of cash security to be posted by the Owner in order to secure removal of the lien from title. The Contractor initially offered to remove its lien if the Owner posted cash security of $800,000, despite acknowledging its “direct losses” were only $354,000.00 at that time.

In February 2016, the parties agreed to have the lien discharged by the Owner paying security of $638,000.00. By, October 2016, the Contractor had agreed that, at most, the amount of its lien was only $452,000.00. However, the Owner still considered this amount to be excessive, and a court hearing took place to determine the appropriate amount of cash security for the Contractor’s lien claim.

At this hearing, the court considered the following issues:

1. Whether the Contractor’s claim of lien was so inflated as to amount to an abuse of the process, such that the Contractor should be penalized under the Builders Lien Act.

2. Whether the amount of security paid by the Owner to have the lien discharged should be further reduced.

The Decision
The court expressed concern with the Contractor’s lien claim. Specifically, the court looked at the fact that the Contractor had prior experience using builders’ liens, and would likely have known that an inflated lien claim can be used improperly to improve a contractor’s bargaining position. The Court criticized the Contractor for being “irresponsible” in overstating its initial lien claim by so much, reasoning that it “should have known better than to file the lien for $1,215,000.00”. Ultimately, the court found the Contractor had “rescued itself” from a finding of abuse of process only because it had voluntarily offered to reduce the amount of its lien claim prior to the court hearing.

Even though the Contractor narrowly avoided being fined for abusing the lien process in this case, the court did significantly reduce the amount of security for its lien claim to only $100,000.00.

Lessons Learned
1. Registering a lien claim can be a very important step in protecting your right to be paid. However, care should be taken to ensure that the lien claim only reflects the legitimate value for the material and labour you have supplied to the construction project. Deliberately inflating the amount of your lien claim as a tactic to improve your bargaining position may result in significant fines later on.

2. If you have registered a claim of lien that turns out to be inflated, be prepared to reasonably reduce the amount of your claim to only the amount owing. Failing to do so could later be found to be an abuse of the lien process.