The Potential Expiry of Builders’ Liens

This article originally appeared in the CBA Saskatchewan Branch’s Bar Notes and is reprinted with their kind permission.

One builders’ lien issue that has attracted attention over the years is the question of what limitation period, if any, applies to the enforcement of a builders’ lien. One view is that the lien, once registered against title, may be enforced at any point in the future. On this view, the lienholder, having provided value to the land, has an interest in the land and, once the lien is registered, it stays until satisfaction is received. An alternate view is that the lien is a cause of action like any other. On this view, the lienholder has a claim for unpaid services or materials provided to the land and, even though a lien is registered, the lienholder must still take legal action to prove his or her claim in Court like any other person with a claim for compensation.

There is guidance on this issue from a decision of Madam Justice Dovell in Syed v. 612565 Saskatchewan Ltd., [2009] S.J. No. 245 (Sask. Q.B.). In this case the Respondent lien holder had registered a lien against the Applicant owners’ land in the amount of $8,744.98 on May 17, 2006. On November 6, 2006, the Applicants made an ex parte application under s. 56 of the BLA for payment into Court of the lien amount plus 25% for costs in return for which the lien would be discharged from title but remain a charge on the funds in Court. The ex parte order was granted and the funds duly paid into Court. However, the Respondent never brought an application for a determination of the amount payable under the lien nor did it ever commence an action. In early 2009, the Applicants brought an application for a declaration that the Respondent’s lien claim was void and for the return of the money in Court. In response, the Respondent brought its own application for an order that the matter be set down for a one day hearing.

Madam Justice Dovell began by looking at the provisions of the BLA. She found that, while there is a limitation period for an action on a BLA trust and there is provision for the expiration of a lien in circumstances where an action has been commenced, there is no specific limitation period for commencing an action on a lien. As such, the provisions of The Limitations Act (the “LTA”) apply.  Under s. 5 of the LTA a two year limitation period applies from the date a claim is discovered. Justice Dovell found that the Respondent had discovered its claim, at the earliest, when default in payment was made by the Applicants, or at the latest, when the Respondent registered its lien. In any event, the latter was beyond two years. That there was an ex parte application by the Applicants in November of 2006 made no difference; the Respondent knew when its lien claim had arisen. Therefore, since two years had passed since the lien claim arose and no action had been commenced by the Respondent, the lien claim was statute barred by s. 5 of the LTA. A declaration was granted that the Respondent’s lien was void and the Applicants received a return of their money in Court.

A more recent decision of Mr. Justice Scherman in RGR Enterprises Ltd. v. Allsteel Builders (2) Ltd., [2012] S.J. No. 415 (Sask. Q.B.) supports the conclusion of Dovell J. in Syed, but also adds some complexity. In this decision, the Applicant mortgagee-turned-owner sought to discharge from title the liens of those Respondent lien holders who had registered builders’ liens but had not commenced actions on their liens, on the basis that the two year limitation period from the date of registration had expired. Two of the Respondent lien holders had commenced actions and one of them sought to add the other lien holders to its action, despite the expiry of the limitation period. The Applicant, earlier when it was a mortgagee, had commenced separate foreclosure proceedings that included all lienholders as defendants.

Justice Scherman confirmed that the limitation period for commencing an action on a builders’ lien is two years from the date of registration of the lien. Beyond that point a lien holder cannot commence an action to enforce its lien. Nevertheless, Mr. Justice Scherman did not order the discharge of the liens of those lienholders who had not yet commenced actions.

This decision was based on the application and interplay of provisions of the BLA and the LTA. Under the BLA, all lien holders are to be added as parties to an action brought to enforce a lien and, if they are not added at the outset, they may be added later at any stage of the proceedings. Having all lienholders as part of an action facilitates the rate-able distribution of funds between lienholders by class as set out under the BLA. As such, the BLA contemplates all lien holders being added to an action so as to take part in any distribution of funds.

Further, s. 20 of the LTA allows a party to be added to an action after the expiry of a limitation period if the party’s claim arose out of the same transaction or occurrence found in the existing action and there is no prejudice to any other party. In this case, since all the lienholders provided their services to the same party and were of the same class, Justice Scherman found that their claims all arose out of the same transaction or occurrence. He also found no prejudice to the Applicant because it was aware of, and added as defendants, all lienholders in its earlier foreclosure action when it was a mortgagee. When the Applicant became owner it had knowledge of these liens when it took title. Therefore, s. 20 of the LTA having been satisfied, Mr. Justice Scherman added the lienholders as defendants to the existing lien action.

Even though the lien holders were being added as defendants, they could still assert their rights to enforce their liens. Justice Scherman held that actions under the BLA are to determine the rights of all parties to an action and are to be determined in a summary manner with a view to minimizing expenses. As such, the BLA contemplated a lien holder enforcing a lien in an action even though it was a defendant, without the need to commence an action, such as a cross-claim.

These decisions suggest there is a limitation period applicable to a lien holder enforcing a builders’ lien. If an action is not commenced on the lien within two years from registration, the lien is vulnerable to being discharged as statute barred. There may be occasions when the rights of an otherwise statute barred lien may be revived, such as the lienholder being named or added as a defendant to another lien holder’s properly commenced action, or perhaps to a foreclosure action. However, prudence suggests not relying on others to facilitate the enforcement of a lienholder’s rights.