Why is section 12 of the Mechanics’ Lien Act important?
Good news for the Atlantic Canadian economy continues to roll in. A major shipbuilding project for Halifax, the re-fit of its naval yard, an oil pipeline coming to New Brunswick, construction of a deep water oil handling terminal in Saint John and continuing exploration for natural gas in New Brunswick have our region poised for significant growth and development. However, as beneficial as new construction projects are for the economy, they pose risks to both owners and contractors unless appropriate precautions are taken.
A lesson in precautionary thinking can be drawn from the pages of a recent decision written by Justice Stephen J. McNally and released in July of 2013. (Penniac Construction Limited v. Cominar Real Estate Investment Trust et al, 2013 NBQB 232). In the Penniac case, supra, the contractor, Penniac Construction, sued for the cost of its materials and services associated with making leasehold improvements to a warehouse for the tenant, namely, Focus Logistics Ltd.
The court awarded damages to Penniac against Focus Logistics in the full amount of the cost for materials and services that were claimed. However, of more interest is the court’s detailed consideration as to whether or not Penniac’s previously-registered Mechanics’ Lien claim was valid. That analysis led the court to review section 12 of the Mechanics’ Lien Act.
The court reiterated the well-known concept that a mechanics’ lien is unknown to the common law and owes its existence entirely to legislation. Consequently, the validity of a mechanics’ lien is entirely dependent upon strict compliance with and application of the Mechanics’ Lien Act. Ultimately, the court concluded that the mechanics’ lien that had been filed by Penniac was invalid because Penniac had failed to issue a section 12 Notice to the owner of the warehouse. Section 12 states:
Where the estate or interest upon which the lien attaches is leasehold, the fee simple is also subject to the lien if the person doing the work or supplying the material gives notice in writing by registered letter or personal service to the owner or his agent of the work to be done or the material to be furnished, and the owner or his agent fails within ten days thereafter to give notice to such person that he will not be responsible therefore.
Simply put, if you are a contractor and you are planning to do improvements on lands that are leased to other parties, you should ensure that you issue a notice as provided for by section 12 of the Mechanics’ Lien Act. In the unfortunate event that it becomes necessary to place a Claim For Lien against a property and issue a lawsuit, you will have the comfort in knowing that your claim will be valid as against the owner, even if your work was for another party leasing the land.
The key points to remember are:
Prepare a clear notice for the landlord. Ensure the notice is blunt and clear;
Serve the notice on the landlord;
Ensure the notice is served at least ten (10) days before the work begins;
Make it clear that the document being served is being relied upon as notice. The document should act solely as a notice document; and
Ensure that the potential liability of the landlord is made abundantly clear in the notice.
Most importantly of all, get out there and get those contracts!