Kelowna’s reputation as a hot bed of entrepreneurialism is well earned and as a result, many people invest either in commercial real estate or in rental residential units.
An owner of land, however, faces risk when their tenant engages in work within the premises. If a contractor or sub-contractor goes unpaid, they may lien the property and have the right to sell the property if their lien remains unpaid. An owner who has ‘prior knowledge’ of the work will be deemed to have requested the work – meaning their interest is liable to be sold – even if the actual contract was between a tenant and the tenant’s contractor. An owner faces material prejudice if their tenant goes out of business without having paid for what in some cases can be significant renovation costs.
Notice of Interest
Protecting the Owner
Although imperfect, an owner who is only aware of the work (in other words, an owner who does not request the work) can file a “notice of interest”. If this notice has been filed before an improvement has been commenced, the owner’s interest is no longer at risk for a tenant created builder’s liens. If (as is typically the case) the lease is not a registered lease, there will be nothing for the lien to attach to – and therefore nothing that an unpaid contractor can try to sell. Practically speaking, the lien rights are of no force and effect.
It should be noted that there is very little case law on the notice of interest and there is a fair bit of uncertainty as to how far it can protect an owner. However, it does provide at least a measure of protection and will give the owner a much better bargaining position if they need to negotiate the removal of a lien. The notice of interest is therefore strongly recommended.
Precautions for Contractors & Subcontractors
On the flip side, if you are a contractor or subcontractor, you also need to be aware of notices of interest. Have you taken steps to search the title prior to signing a contract with a tenant? If there is a notice of interest, do you need to take additional steps to ensure you have lien rights? These are important questions to ask, especially for any major commercial project.
Tenant Created Builder’s Liens
The Builders Lien Act represents an attempt to provide compromise protective measures to owners, contractors and subcontractors. The impact of the notice of interest is one such compromise measure and it can have significant impact on the rights of parties within both commercial and residential construction. It is strongly recommended you seek advice when purchasing or owning rental property, or when undertaking work for tenants in rental property.