Legal Update: "Distinct and Memorable" Notice Required to Lien Owner's Interest for Tenant's Leasehold Improvements in NB

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Legal Update: “Distinct and Memorable” Notice Required to Lien Owner’s Interest for Tenant’s Leasehold Improvements in NB

September 3, 2013

By Chris Keirstead, at McInnes Cooper

In July 2013, the NB Court of Queen’s Bench delivered only the second reported decision dealing with the notice required under section 12 of the NB Mechanics’ Lien Act to lien the owner’s interest for a tenant’s leasehold improvements:

Statutory Notice Requirement. A contractor seeking to lien an owner’s interest for tenant’s leasehold improvements must give the owner notice that complies with the time and delivery requirements section 12 of the Act.
“Distinct and Memorable” Notice. To comply with section 12, the notice must be sufficiently “distinct and memorable” to allow the owner to know that its interest is at risk and when the notice period commences.

The Court’s decision cleared up considerably the law on the section 12 notice requirement – and should lead to fewer disputes between parties over it. McInnes Cooper’s Eric LeDrew and Chris Keirstead represented the successful owner.

BACKGROUND

Cominar Real Estate Investment Trust, a commercial landlord, negotiated a lease for premises in NB to Focus as tenant. They signed a formal Offer to Lease that contained all the essential terms for a lease – including provisions for leasehold improvements. Cominar and the tenant subsequently agreed to terms with a contractor for improvements to the premises. Cominar and the tenant each of signed a separate quote; the tenant’s quote expressly stated it was specifically responsible for the work on the premises. The contractor sent Cominar a copy of the tenant’s quote.

The tenant occupied the premises and paid two months’ rent. However, it soon abandoned the premises and advised Cominar it would not return. Soon after, the contractor served Cominar with a Notice of Lien and registered a lien against Cominar’s interest in the entire property – not just the tenant’s leasehold interest. The contractor subsequently sued Cominar and the tenant to enforce the lien.

Cominar, however, argued that the contractor had not provided it with notice under section 12 of the Act, and the lien against its ownership interest was not valid.

“DISTINCT AND MEMORABLE NOTICE”

Section 12 Notice. Under section 12 of the Act, a lien attached to a leasehold interest also attaches to the underlying property ownership if:

the person doing the work or supplying the materials gives the owner written notice of the work to be done or material to be furnished;
the notice is given by registered letter or person service; and
the owner does not give the worker or the supplier notice that he will not be responsible for the work or supplies within 10 days.

Section 12 does not, however, provide further guidance respecting the required nature, form or content of the notice.

“Distinct and Memorable Notice” Test. The contractor argued it complied with section 12 of the Act when it sent Cominar a copy of the tenant’s quote. However, the NB Court of Queen’s Bench disagreed – and enunciated a clear test for section 12 notice in NB:

Existing NB Law Not Applicable. The Court decided that a 1985 NB decision upholding the validity of a contractor’s lien, even though it did not send its letter to the owner by registered mail, did not apply. The Court found there must have been some form of personal service.
“Distinct and Memorable” Notice. After canvassing Canadian law, the Court adopted the Ontario test for the section 12 notice of the Act: the notice must be sufficiently “distinct and memorable” so the landlord knows when the time in which he can deny liability starts. In short, the Court found the notice must “clearly signal a potential liability” for the landlord.
No Intention to Put on Notice. The Court decided the “notice events” – the evidence that the steps the contractor took were intended to provide the section 12 notice – were not alone sufficient, either singularly or cumulatively, to satisfy the notice requirement. When Cominar’s representative advised the contractor’s representative to get the tenant’s signature on the quote, both clearly understood the contractor was simply confirming the tenant’s quotation and Cominar merely approved the nature and scope of the work. Thus, the Court decided, the contractor had no intention of putting Cominar on notice when it sent it a copy of the tenant’s quote.

The Court concluded that the contractor had not complied with the section 12 notice. The lien against Cominar’s ownership interest in the premises for the tenant’s leasehold improvements was thus not valid.

Click here to read the NB Court of Queen’s Bench decision in Penniac Construction Limited v. Cominar Real Estate Investment Trust et al.

INCREASED CLARITY DECREASES DISPUTES

This decision is only the second reported case in NB interpreting the Act’s section 12 notice requirement. It significantly clarifies the law in NB respecting the notice required under section 12 of the Act: if a contractor doing work for a tenant wants the option to lien the owner’s interest in the property, it must give the owner notice that is sufficiently distinct and memorable to allow the landlord to know that its interest is at risk and when the notice period commences. Because its purpose is to allow the owner to decide whether to accept that responsibility, it must be clear to a lay-person that his legal rights may be affected and he has the right to reject the notice. By setting out a clearer test for the notice, the Court provided direction to owners, tenants and contractors with the practical effect of helping parties to avoid disputes on this issue in the future.

Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Construction Law Team to discuss this topic or any other legal issue.

McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.

© McInnes Cooper, 2013. All rights reserved. McInnes Cooper owns the copyright in this document. You may reproduce and distribute this document in its entirety as long as you do not alter the form or the content and you give McInnes Cooper credit for it. You must obtain McInnes Cooper’s consent for any other form of reproduction or distribution. Click here to request our consent.

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