Cape Group entered into an agreement with the owners of a property in Vancouver to develop a nine-storey mixed-use rental building consisting of rental units and commercial businesses. A city development permit was applied for in May 2020. In November of 2020, the city issued a "Prior to Permit Issuance Letter", setting out the conditions that would have to be met for a development permit to be issued, with a deadline set for May 30, 2022.

In February 2022, Cape Group presented the owners/defendants with an updated report listing what had been done to date. This included retaining a company to provide an environmental assessment, designing the parkade along with geotechnical and structural engineers (due to poor soil conditions and groundwater intrusion), securing underpinning agreements with neighbours, and submitting a traffic management plan to the Rapid Transit Office. Despite these efforts, no development permit was issued and no planning approval was obtained.

Importantly, no physical demolition or construction work ever began, which Cape Group said was due to poor market conditions and the defendants’ failure to pay invoices. Cape Group registered a lien against the property in the amount of its unpaid invoices, and later commenced an action and filed a certificate of pending litigation ("CPL"). In response, the defendants applied for an order to cancel the lien and CPL.

Did Cape Group make out an arguable case that it had performed or provided work "in relation to an improvement"?

The defendants cited a number of decisions from the British Columbia Court of Appeal in support of their argument. In John Perkins/Peter Wardle Partnership v Domus Design Co., it was held that the preparation of design drawings submitted to the city in support of an application for approval or a project that did not proceed, even if the work raises the value of the property, was not considered work "in relation to an improvement". Furthermore, in Chaston Construction Corp v Henderson Land Holdings (Canada) Ltd., the Court overruled a previous decision that said that one can acquire lien rights regardless of whether construction work had actually begun; specifically, it held that a lien is not valid in respect of pre-construction work where construction never commences.

Cape Group attempted to distinguish these cases on the basis that it had done everything possible to prepare for construction to begin. However, the Court ultimately determined that without any physical demolition or construction work having begun, the pre-construction work that Cape Group performed cannot be said to have been done "in relation to an improvement". Therefore, Cape Group did not have a valid claim for a lien, and the application to cancel the lien and CPL was granted.

How do Alberta Courts handle this issue?

In JK Engineering Ltd. v Red Quest Developments Ltd., the plaintiff was retained by the defendant to provide both designs, material supply, and construction services in connection with the development and construction of an RV park. Prior to starting its work designing and constructing a wastewater system, the plaintiff was retained to help obtain approval from Alberta Environment in respect of the surface water storm drainage system. The parties were still waiting for approval by the time construction of the water treatment and wastewater disposal systems had begun.

The Court noted that a lien arises in respect of an "improvement", which is defined as including "anything constructed…or intended to be constructed", providing the example of an architect whose detailed drawings for a construction project is still entitled to claim a lien even though the owner decides not to proceed with the work. In this case, the Court held that the work done by the plaintiff was directly related to the construction, which was already underway, and was not "mere development work". The surface drainage work was similar enough to the work the plaintiff already completed, and the plaintiff had been retained during the construction process for this additional work. As such, the defendant's application to strike the lien was dismissed.

In Alberta, the Prompt Payment and Construction Lien Act (sections 1.1(1) and 70(a)(i)) and the Prompt Payment and Adjudication Regulation applies to engineers and architects. This, combined with the language in the PPCLA indicating that an "improvement" includes anything "intended to be constructed", implies that an architect who contributes drawings to a project which may never begin, as the Court in JK Engineering noted, "may be in a precarious position as to the registration of a lien". But the issue at least appears arguable in Alberta, as opposed to the situation in BC.

Takeaways

When determining whether a party has performed or provided work "in relation to an improvement", BC courts will not stray from the rule that, without any physical demolition or construction work having begun, pre-construction work will not be done "in relation to an improvement" and will not give rise to a valid right of lien.

A similar result would follow in Alberta, however, Courts have left the door open to the possibility that a party may have a valid right of lien in a situation where construction has yet to begin.

Given the complexities of construction liens, it is always advisable to consult a lawyer before registering a lien. Contact Anthony Burden in Field Law’s Calgary office, Ryan Krushelnitzky in the Edmonton office, or other members of Field Law’s Construction Group for assistance.

Link to decision: Cape Group Management Ltd. v 0793231 B.C. Ltd., 2024 BCSC 493