Not So Sacrosanct After All: Court Pre-Emptively Vacates Builders’ Lien
Published:
April 12, 2023
Author(s):
The Supreme Court of Nova Scotia has made it clear that, while the burden is high, pre-emptively vacating or discharging a builders’ lien is a decidedly possible remedy. The Court’s February 2023 decision in Maynard Holdings Limited v. Optimo Group Inc. concluded a court must critically examine the claim underlying a builders’ lien to determine its validity and, if unsustainable, vacate or discharge the lien. The decision confirms that both property owners and lien claimants should no longer consider builders’ liens the sacrosanct security it historically was. McInnes Cooper Litigation Lawyer Gavin Giles represented the successful party, Maynard Holdings Limited.
The Builders’ Lien. Historically, builders’ liens were considered a sacrosanct security device that builders can register against properties on which they have done work or to which they have sold, rented, or loaned tools and supplies. Builders’ liens typically form a first, or at least a ranking, charge on the properties against which they are recorded. As a result, they can stand in the way of construction project advances by way of builders’ mortgages or lines of credit collaterally secured to the properties to which they apply. However, builders’ liens are generally binding until the underlying litigation is resolved by formal court order. But many builders, developers, and property owners can’t wait that long. Instead, to ensure the timely flow of building capital, property owners employ bonding or make cash payments into court to vacate or discharge the lien. This can amount to a significant long-term drain on a builder’s capital that can result in the requirement of higher-than-expected cash infusions to complete related projects.
The Statutory “Out”. Section 29(4) of the Nova Scotia Builders’ Lien Act gives property owners against whose property a builders’ lien is filed a potential “out”; however, courts rarely exercise their discretion to vacate or discharge a builders’ lien except through posting a bond or paying security into court:
29(4) Upon application, the court or judge having jurisdiction to try an action to realize a lien, may allow security for or payment into court of the amount of the claim, and may thereupon order that the registration of the lien be vacated or may vacate the registration upon any other proper ground and a certificate of the order may be registered.
The Case. Maynard Holdings was involved in a development project. Optimo Group had a fixed price subcontract on the project. Despite this, Optimo Group demanded Maynard Holdings pay it additional compensation under the subcontract failing which it would abandon the project. Maynard Holdings had well and fairly compensated Optimo for work done up until that time. Maynard Holdings refused Optimo Group’s demand and proceeded as if Optimo had in fact abandoned its subcontract. Optimo Group filed a builders’ lien against the project property. Maynard Holdings asked the Court to vacate the lien on the basis the underlying claim was invalid – and succeeded. Relying on the discretion under section 29(4) of the Act, the Court reasoned that the “heavy burden” test to deprive lienholders of their lien security it enunciated in its decision in King (Hand Construction) v. Dileno warrants significant scrutiny of the underlying claim. Critically examining Optimo Group’s claim, the Court concluded it was badly flawed because of the abandonment issue and was not only readily defensible but might not be sustainable at all – and vacated the lien.
Please contact your McInnes Cooper lawyer or any member of our Construction Law Team @ McInnes Cooper to discuss how to file – or to vacate – a builders’ lien.
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