Alberta court holds that creditors with registered builders liens and caveats have priority over strata-lot purchasers’ unregistered trust interests

Alberta court holds that creditors with registered builders liens and caveats have priority over strata-lot purchasers’ unregistered trust interests

July 20, 2016

BY Kevin Zakreski

In 1864684 Alberta Ltd v 1693737 Alberta Inc, 2016 ABQB 371, the Alberta Court of Queen’s Bench made a “determination of creditors’ entitlement to net sale proceeds” of a commercial-condominium development located in Airdrie, Alberta. The condominium’s developer was in receivership and the land “was sold in a court-supervised receivership,” with the proceeds being paid into court. The court was asked to determine the claims of “four classes of creditors that could claim entitlement to the Proceeds”:

• Strata-lot purchasers, who were claiming “priority under a statutory trust created by s 14(3) of the Condominium Property Act, RSA 2000, c C-22. Their interests were registered against the title to the Land, albeit after several other interests had been registered.” (British Columbia’s Strata Property Act doesn’t have an equivalent provision to Alberta’s section 14. The closest BC parallel to Alberta’s legislation would be sections 18 and 19 of the Real Estate Development Marketing Act.)
• Various construction companies, which were claiming “priority entitlement to the Proceeds pursuant to their builders’ liens . . . that were registered on the title to the Land.”
• An individual caveat holder, who was arguing “that priority to the Proceeds should be determined based on the order in which the interests were registered against title to the Land pursuant to the Land Titles Act.”
• A mortgagee.

The mortgagee “did not participate in this application,” leaving the case as a contest between the purchasers, on one side, and the lienholders and caveat holder, on the other. The court defined “the sole issue to be determined on this application” in the following terms:

Does the trust claim being advanced by the Purchasers, based upon the foregoing assumptions, have priority over the registrations on title to the Land?

The “foregoing assumptions” were the “common set of factual assumptions” the parties agreed to for the application. These assumptions were as follows:

• Under agreements for purchase and sale, the Purchasers paid deposits to the Developer to purchase condominium units to be constructed on the Land as contemplated by s 14(3) of the Condominium Property Act. . . . The agreements expressly provided that the Deposits were to be used to purchase the Land and construction of a commercial condominium unit and project on the Land.
• Deposits were paid both before and after builders’ liens were registered on title to the Land.
• All Builders’ Lien claims are valid and enforceable as registered. In a separate action, pursuant to an application by the owner of the Land[], the lien fund was set.
• The caveat re [sic] agreement charging land is valid and enforceable as registered.
• The Developer did not hold the Deposits in a separate trust account as required by the Condominium Property Act.
• The Developer used the Deposits to fund the construction of the Condominium Project on the Land[].
• The Developer was unable to complete the project, a Receiver [of the Land] was appointed and the Land[][was] sold in the receivership.
• The Receiver paid the net sale proceeds from the sale of the Land[] into Court. [Brackets in original.]

The court viewed its task as involving “the interpretation and interplay of two provincial legislative regimes.” These two regimes were Alberta’s Condominium Property Act, which was characterized as “remedial consumer protection legislation designed to protect purchasers,” and Alberta’s Land Titles Act, which was characterized as being intended to assure “commercial certainty for those who deal with land.”

The court noted that

As the Land Titles Act contains specific provisions for determining priority of interests in land, the question becomes whether the Condominium Property Act repeals, modifies, alters or ousts these provisions of the Land Titles Act.

The court answered this question in the negative, spelling out its reasons in detail:

The Lienholders and the Caveat Holder are persons who took an encumbrance, as defined by s 1(e) of the Land Titles Act, from the Developer, who was the owner of the Land. The Lienholders and the Caveat Holder added value to the Land; the Lienholders through their work efforts and the Caveat Holder through its alleged injection of cash. These parties were able to review the registrations on the title to the Land prior to making their decision to add value to the Land. They then registered their interests on the title to the Land, in order to establish the priority of their claims and protect their interest. That same option was open to the Purchasers.

Section 203(a) is clear that the Lienholders and the Caveat Holder were not required, for the purpose of obtaining priority for their interest, to inquire into how the purchase money for the Land was sourced or applied. They were also not affected by notice of any trust interest in the Land that was not registered by instrument, any rule of law or equity to the contrary notwithstanding.

The legislative intent is to ensure that persons seeking to acquire new interests in land can rely on the existing title with no need to make any further inquiries about competing claims, title defects or equitable unregistered claims. In accordance with the Land Titles Act registry system, registered interests take priority by date of registration and therefore take priority over any unregistered interests. Thus, absent fraud as set out in the Land Titles Act (which fraud is neither alleged nor proven), the Purchasers’ unregistered trust claims do not create an interest in land that would take priority over registered encumbrances. To do so would contradict the plain words of ss 14, 56 and 203 of the Land Titles Act.

If the Legislature wished to give priority to an unregistered trust claim created by s 14(3) of the Condominium Property Act over registered interests on land notwithstanding the provisions of the Land Titles Act to the contrary, clear language would have been used. It did not do so. To suggest otherwise, would defeat the Legislature’s intent in adopting the Torrens land registration system for determining priority of claims to interests in land and would undermine the commercial certainty created by our Land Titles Act registry system. In Alberta, all persons dealing with land are entitled to rely on the face of the certificate of title in determining the interests to that land. Absent fraud as set out in the Land Titles Act, priority created by registration should remain intact.

In the result, the court held that

the Purchasers’ unregistered statutory trust claim does not take priority over the registered interests on the title to the Land. Instead, priority to the Proceeds is to be determined and set in accordance with registration under s 14(3) of the Land Titles Act.