Legal Updates

THE CANADIAN REAL ESTATE ASSOCIATION’S DUTY OF COOPERATION POLICY – TRANSPARENCY VIA THE MULTIPLE LISTING SERVICE

During their Annual General Meeting in April of 2023, the Canadian Real Estate Association (CREA) voted in favor of adding a policy of a “Duty of Cooperation” to be added to the Realtor Code. This duty of cooperation requires realtors to put residential listings on its Multiple Listing Service (MLS) within three days of publicly marketing a property. The policy will shortly come into force on January 3, 2024.

The CREA defines public marketing as any type of marketing of a listing to the public or to anyone not directly affiliated with the brokers and licensees. Therefore, if a realtor takes any steps to market the property to the public, he or she is automatically required to post the same property on MLS after three days of doing so. Some examples of public marketing then would be flyers, yard signs, and digital marketing or social media.

This policy aims to address marketing tactics that kept the listings off MLS which made it more difficult for other realtors to be notified of available properties. The policy also includes additional disclosure requirements. CREA hopes to increase the opportunities for sellers by ensuring that the information is made available on MLS.

CREA acknowledges that there are different situations for each buyer and seller, and that in some instances privacy must be considered. As such, exclusives are permitted with the caveat that the seller who declines to use the MLS needs to confirm their decision in writing and that they understand the disadvantages of not using MLS.

Source:

https://www.crea.ca/media-hub/news/a-new-duty-of-cooperation-added-to-the-realtor-code/

Amendments to the Prohibition on the Purchase of Residential Property by Non-Canadians Act and the Regulations

It didn’t take long for the government to recognize how this ban essentially discourages new comers to establish their roots in Canada and consider our country their new home.  Amendments have been introduced on March 27, 2023.  Noting the reason for the amendments, Hon. Ahmed Hussen, Minister of Housing and Diversity and Inclusion, said: “These amendments strike the balance in ensuring that housing is used to house those living in Canada, rather than a speculative investment by foreign investors.”

There are four notable amendments effective March 27, 2023, namely:

Enable work permit holders to purchase a home to live in while working in Canada

This is the most beneficial among all the amendments so far.  This amendment will allow who hold work permit or authorised to work in Canada under the Immigration and Refugee Protection Regulations to purchase a residential property.  If you hold a work permit that is valid for 183 days or more remaining on their work permit or work authorization, you are eligible to purchase one residential property.  The requirement on tax filing and previous work experience in Canada are repealed.

The prohibition no longer applies to vacant lands

This repeals section 3(2) of the Act which prohibits the purchase of vacant land zoned for residential use or mixed-used  by non-Canadians.  Vacant land zone for resident and mixed use can now be purchased by non-Canadians for any purpose the purchaser deems, including residential development.

Purchasing for the purpose of development

This exception now allows non-Canadians to purchase residential property for the purpose of development. Notably, this exception is extended to publicly traded corporations under the Act or to publicly traded entities formed under the laws of a province or Canada and controlled by a non-Canadian.

Foreign threshold increases from 3% to 10% for foreign controlled corporations

For privately held corporations or privately held entities, the foreign control threshold has now increased to 10% from 3%, in line with the definition of ‘specified Canadian Corporation’ under the Underused Housing Tax Act.

The amendments bring good news to our foreign workers who are integral in the Canada’s economy.

Last December 15, 2022, the Property Rights Statutes Amendment Act took effect.  Prior to this Act, a person who has been adversely occupying private owned lands has the potential to go to Court and claim ownership.  Only public land, municipal land and irrigation were protected.

The new Act abolishes the ability of adverse possessors to make a claim over private lands.  Adverse possession, otherwise known as ‘squatter’s rights’, allows a person who has occupied another person’s land for at least 10 years to go to Court and make a claim of ownership.

Squatter’s rights have brought enormous worry and stress to landowners in Alberta with the need to always monitor and keep people from taking possession of their property in order not to lose them.

For over a decade, advocates and past governments have called for the abolition of adverse possession.  In an April 2020 report, it was reported that there were only nine cases in the last eight years up to 2020 but there was a belief that there may be other adverse possession cases that were not listed nor made public.  An MLA Select Special Committee on Real Property did a rigorous consultation with the public that resulted to the proposition to abolish adverse possession.    In 2017, the Alberta Law Reform Institute reviewed the adverse possession law and in 2020 has made recommendations to stop the ‘squatter’s rights’.

With the new Act, Alberta’s registered owners can now heave a sigh of relief, use and enjoy their property without the worry of any ‘squatter’s rights’ overtaking their property.

This 2023, in the desire to generate more income, the federal government is also cracking down certain individuals engaged in flipping residential real estate and improperly reporting the sales as business income.

Principal Residence Exemption

When a home qualifies as a principal residence, the income from the sale of such home may be exempt from capital gains under the principal residence exemption (PRE).  To be eligible for PRE, there are many factors such as but not limited to actually owning the home, and inhabiting the home for at least part of the year by the individual (or spouse, common-law partner or child).

An example would be if A bought a property for $500,000 and sold it for $650,000 after 5 years of living in it, the income of $150,000 from the sale would be tax-free under the PRE.

Capital Gains for Sale of Rental Property

Notably, if the main reason from owning a housing unit is to gain or produce income, such as in the case of a rental property, then such home will not be eligible for the PRE. The income realized on the sale of a rental property would be taxed as capital gains.  The income taxable is only 50% of the gain.

So if A bought a property for $500,000 and had it rented out and afterwards sold for $650,000 after 5 years, the income to be considered as gain is only $75,000.

Business Income for Sale of Flipped Property

The income from the sale from flipping, assignment or buying to build and sell the property is generally taxed as business income at the seller’s tax rate.

So if A bought the property for $500,000 and made renovations to it amounting to $100,000 and sold the same to B for $750,000, the income of $150,000 would be taxed as full business income.  CRA would then look at A’s tax rate and apply the rate against the $150,000 income.

The New Anti-Flipping Rule

The CRA has found that house flippers have been incorrectly using the PRE to avoid or minimize taxes. Under the new Rule, the gain in the disposition of “flipped properties” are to be realized as taxable business income and not as capital gain.

The Rule provides that an individual who sells a residence within 12 months of acquiring it will be deemed to have flipped it unless they fall under any of the exceptions. The exceptions include a number of life events including the death of the individual or a related party, an addition to a household, breakdown of a relationship, a threat to personal safety, serious illness or disability, work relocation or termination, insolvency or destruction or expropriation of the home.

This new Rule would take effect for transactions occurring on and after January 1, 2023.  We highly advise that you approach your accountant or your tax lawyer if you are intending to sell any property within 12 months from your date of purchase to avoid being considered under this Rule.

SERVICE OF COMMENCEMENT DOCUMENTS – ORDER VALIDATING SERVICE NO LONGER REQUIRED WHEN THERE IS ELECTRONIC ACKNOWLEDGMENT FROM THE DEFENDANT

Recently, the Court of King’s Bench released a memorandum of the decision made by the Honourable Applications Judge B.W. Summers, Toronto Dominion Bank v Halliday, 2022 ABKB 764, (“Halliday”) which provides guidance as to when an order validating service is no longer required.

In Halliday, the plaintiff filed an affidavit with an email attachment to the defendant which stated: “attached to this email is the Statement of Claim in court action #2203 15669, The Toronto Dominion Bank v Robyn Halliday. Please confirm if you are willing to receive this document via email.”

The plaintiff’s affidavit also attached the defendant’s email response which stated: “I confirm that the document is received.”

The Clerk was directed to treat the affidavit evidence as sufficient proof of service of the Statement of Claim on the Defendant.

Applications Judge Summers considered sections of the Alberta Rules of Court in making his decision. As the defendant in the case at bar was self-represented, he considered Rule 11.18(1), which tells us that a self-represented litigant may accept in writing, service of a commencement document. Judge Summers also noted Rule 11.30(b), which tells us that service of a document in Alberta and service of documents other than commencement documents outside Alberta may be proved to have been effected by an acknowledgment or acceptance of service in writing by the person served.

Judge Summers stated that the concept of acknowledgment or acceptance of service in writing requires a document with the recipient’s handwritten signature on it is anachronistic, and that most of written communication today is by electronic means. As such electronic transmissions may constitute an acknowledgment or acceptance of service in writing.

Judge Summers also provided an outline to guide the Bar and the Clerks of Court showing when an order validating service is no longer required. The Plaintiff must submit to the Clerk of the Court an Affidavit of Service which states that the defendant was served, the method of service and the date of service. This Affidavit must refer to and attach as an exhibit a written document from the Defendant where the Defendant acknowledges or accepts service of the commencement document. A written document may be an email, a text message, a social media communication or a handwritten note. The plaintiff must also show prove that the Statement of Claim was served in the manner that the defendant agreed to.

Judge Summers did clarify that a confirmation from an electronic transmission service such as Microsoft Outlook is not sufficient in and of itself. Similarly, verbal acceptance is not sufficient as well.

When is an Order Validating Service still required? If the written acknowledgment comes from an agent on behalf of the defendant – an Order Validating Service under Rule 11.27 is still necessary. An Order Validating Service may also be required if the Clerk of the Court has doubt as to whether the evidence of service is satisfactory, in which case the Clerk may refer the matter to an Applications Judge for their discretion. Alternatively, the Clerk may exercise its own discretion to advise the submitting party that an order validating service will be required. It is also important to note that the Halliday decision does not change the compliance requirements for service as per the Convention on the Service Abroad of Judicial or Extrajudicial documents in Civil or Commercial matters.

The Halliday decision provides a welcome change which considers the prevalence of usage of electronic means of communication, and streamlines the court process by not requiring parties to obtain an order validating service when the defendant has already confirmed acceptance of service.

Beware:  Prohibition on the Purchase of Residential Property by Non-Canadian will take effect soon!

Due to the skyrocketing housing prices, the Government of Canada has passed the “Prohibition on the Purchase of Residential Property by Non-Canadians Act” (“the Act”).  This Act will come into force on January 1, 2023 and would be valid for a two-year period or until December 31, 2024.   Purchasers, developers and real estate agents must be aware of the restrictions in order to ensure compliance with the Act.  Some of the key points of the Act are as follows:

Exceptions

The Act does not apply to the following:

1. Canadian Citizens and Permanent Residents;
2. A Temporary resident within the meaning of the Immigration and Refugee Protection Act who satisfies prescribed conditions;
3. A protected person within the meaning of subsection 95(2) of that Act;
4. An individual who is a non-Canadian and who purchases residential property in Canada with their spouse or common-law partner if the spouse or common law-partner is a Canadian citizen, person registered as an Indian under the Indian Act, permanent resident or person referred to in paragraph (b) or (c); or
5. A person of a prescribed class of persons.

There are other exceptions in prescribed circumstances and foreign states for purchases of diplomatic or consular purposes.

The Act is not clear as to the prescribed class of persons or prescribed circumstances.  The full extent of the Act, scope, restrictions and exceptions will be clearer once the Regulation has been released.

Residential Property Types

The properties included are the following:

1. A detached house or similar building, containing not more than three dwelling units (residential unit with private kitchen facilities, bath and living area);
2. Part of a building that is intended to be a separate parcel or other division of real property or immovable including a semi-detached house, rowhouse unit, residential condominium unit or other similar premises;
3. Any prescribed real property or immovable.

Violations

Violation of the prohibition of the Act, counseling, inducing, aiding or abetting or attempting to do the same makes one guilty of an offence and liable on summary conviction, to a fine of not more than $10,000. A non-Canadian who is convicted of violating this prohibition, in addition, may be forced to sell the property for no more than the purchase price as it was obtained.

Beware:

If you are involved with a purchase of a residential property (be as a developer, realtor, lawyer, mortgage broker, etc.), it is incumbent upon you to familiarize yourself with the prohibitions under the Act, as well as the upcoming Regulations.  Reasonable inquiries with your clients is highly advised.

NEWHOUSE v GARLAND: DOCUMENTATION AND ERRING ON THE SIDE OF CAUTION

The B.C Court of Appeal, in a 2-1 decision Newhouse v Garland 2022 BCCA 276, confirms the Chamber’s Judge Decision that the Appellant Ms. Patricia Newhouse failed to prove, on a balance of probabilities, that she and the deceased Bob Garland intended to hold an investment property as joint tenants with a right of survivorship. This case tells us that if parties were to intend a right of survivorship over a property when either of them passes away, it is highly encouraged to have written documents endorsed by both parties evidencing this intention.

There is a legal presumption that partners hold partnership property as tenants in common, and as such there is no right of survivorship. However, the Partnership Act, RSBC 1996, c 348 Section 21 allows partners to vary their mutual rights and duties by either the express or inferred consent. In this case, the appellant argued that she held the property with Bob as joint tenants with a right of survivorship instead of holding the partnership property as tenants in common as this would allow her to obtain the full value of the property which is approximately at one million dollars. On the other hand, if the property was seen to be held by the parties as tenants in common, Bob’s estate would still be entitled to his half of the value of the property.

The Chamber’s Judge concluded that Ms. Newhouse has failed to prove on a balance of probabilities that the parties had an agreement intending that the right of survivorship applied to their investment property. The Chamber’s Judge inferred that Ms. Newhouse only came to fully appreciate the significance of the joint tenancy and the right of survivorship upon researching after Bob’s death, that Ms. Newhouse’s affidavits were vague and lacking in particulars, and that Ms. Newhouse was not credible. On the other hand, the Chamber’s Judge viewed Bob’s instructions in a Wills Checklist reflecting Bob’s anticipation of the property being sold upon his death, which was consistent with the ordinary rules that govern partnership property on the dissolution of a partnership. The Chambers Judge subsequently held that the property was indeed held by the parties as tenants in common only.

Ms. Newhouse appealed the Chamber’s Judge Decision. In the Court of Appeal, one of the considerations that the sole dissenting Justice, Justice Goepel, looked at when arguing that the Chamber’s Judge decision be overturned was that the deed, the mortgage and the BMO application signified a contrary intention to the legal presumption that the partners hold the investment property as tenants in common, and that Patricia and Bob were to hold the property as joint tenants with a right of survivorship.

The majority Justices Justice Dickson and Justice DeWitt-Van Oosten did not agree – the deed, the mortgage and the BMO application was not enough. The majority was not satisfied that these documents sufficiently resolved the live issue of whether the parties also intended to give each other the right of survivorship. The majority agreed with the Chambers Judge’s decision that Ms. Newhouse failed to prove on a balance of probabilities that there was an agreement between her and Bob that the value of the property would go solely to the surviving partner in case that either partner passes away.

This decision cost Ms. Newhouse roughly half a million. It remains to be seen as to whether Ms. Newhouse would continue to appeal to a higher level of court, but this case tells us that in order to avoid making the same mistake as Ms. Newhouse, it is highly encouraged to prepare written documents evidencing the parties’ intent to give each other the right of survivorship.

https://www.canadianlawyermag.com/practice-areas/corporate-commercial/no-survivorship-right-in-partnership-propertys-beneficial-interest-bc-court-of-appeal/369115?utm_source=GA&e=ZGhlbmRyaXhAaGVuZHJpeGxhdy5jYQ&utm_medium=20220819&utm_campaign=CLW-Newsletter-20220819&utm_content=0268D16E-98B1-4AD8-8694-0B7048E32DB4&tu=0268D16E-98B1-4AD8-8694-0B7048E32DB4

If the will-maker’s Will had overcome the proof of formal validity of the will, there is a presumption of the will-maker’s testamentary capacity, knowledge and approval of the Will, unless, suspicious circumstances are present with respect to the testamentary capacity, knowledge and approval of the will-maker.

The Supreme Court of British Columbia recently invalidated the Will of a BC woman finding her to have lacked capacity upon her execution of the will due to suspicious circumstances.

In the case of Jung Estate vs. Jung Estate, 2022 BCSC 1298, the testatrix died leaving two sons.  It was alleged by one son, the plaintiff and executor of the estate, that their mother was unduly influenced by his brother, the defendant, when she made her 2017 Will.  The Will leaves a specific bequest of a real estate property to the defendant and the residue of the estate to the plaintiff.  The parties later agreed that the residue of the estate would be fully spent and there will be no funds to be distributed to the plaintiff, effectively disinheriting the plaintiff in the Will.   The plaintiff filed a complaint with the BC Supreme Court against the defendant.

The Court ruled in favour of the plaintiff and the Will was declared invalid.  In invalidating the Will, the Court extensively analyzed whether there were suspicious circumstances surrounding the creation and execution of the Will.

As laid down by the Court:

“When a Will has been executed in accordance with the statutory formalities (such as the will is in writing, was signed at the end of the document in the presence of two witnesses at the same time at the presence of the will-maker), the propounder is aided by a rebuttable presumption that the will-maker possessed the requisite knowledge and approval, and testamentary capacity:  Vout at para. 24; Lantzius Estate at para. 64; Laszlo at para. 205; Leung v. Chang, 2013 BCSC 976 at para. 31, aff’d 2014 BCCA 28, leave to appeal ref’d [2014] S.C.C.A. No. 261 [Leung]; Allart Estate v. Allart, 2014 BCSC 2211 at para. 33 [Allart Estate].’

If the will-maker’s will had overcome the proof of formal validity of the will, there is a presumption of the will-maker’s testamentary capacity, knowledge and approval of the Will, unless, suspicious circumstances are present with respect to the testamentary capacity, knowledge and approval and of the will-maker.

In this case, the plaintiff alleged suspicious circumstances surrounding the execution of the will; thus, reverting the burden to the defendant, who alleges the validity of the Will, of proving the testatrix’s testamentary capacity and knowledge and approval, on a balance of probabilities.

What are suspicious circumstances?  The Court explained the same to be:

“Suspicious circumstances must raise what has been described as a “specific and focused suspicion”; a “general miasma of suspicion that something unsavoury may have occurred” is not sufficient:  Leung at para. 32; citing Clark v. Nash (1989), 1989 CanLII 2923 (BC CA), 61 D.L.R. (4th) 409 at 425 (B.C.C.A.). Such suspicions must be “well grounded” and will generally relate to circumstances (1) surrounding the preparation and execution of the will, (2) calling into question the capacity of the will-maker, or (3) tending to show that the free will of the will-maker was overborne by acts of coercion or fraud: Vout at para. 25; Allart Estate at para. 32. There is no checklist of suspicious circumstances, but one commonly occurring theme is where a beneficiary is instrumental in the preparation of the will (especially where they stand in a fiduciary position to the testator): Laszlo at para. 207.”

After analyzing the evidence presented by both parties, the Court found the testatrix to have no testamentary capacity at the time she made the Will.

According to the Court, the testatrix did not have a sufficient understanding of the value of her assets and she did not appreciate the actual consequences of her decision to give the Property to only one son.  Further, there was no evidence that the testatrix understood the legal difference between a specific gift and a gift of the residue nor an understanding that all estate expense would be paid from the residue.

Worthy to note that the Court said:  “ While Ms. Jung did not need the “metronomic precision of an accountant” she did need to be able to appreciate the effective result of a specific gift of the Property to Jerry on the distribution of her estate, and most importantly, upon the amount remaining in the residue of her estate. I find she did not have the necessary capacity to understand the nature and the effect of the distribution she set out in the Will, and as a result accordingly did not have the testamentary capacity necessary to create a valid will.”

The Court invalidated the Will of the testatrix and has reinstated her 2001 Will and 2002 Codicil.

Please see the summary from the Canadian Lawyer Magazine:

https://www.canadianlawyermag.com/practice-areas/trusts-and-estates/supreme-court-of-bc-declares-deceased-womans-will-invalid-due-to-lack-of-testamentary-capacity/368787?utm_source=GA&e=ZGhlbmRyaXhAaGVuZHJpeGxhdy5jYQ&utm_medium=20220808&utm_campaign=CLW-Newsletter-20220808&utm_content=0268D16E-98B1-4AD8-8694-0B7048E32DB4&tu=0268D16E-98B1-4AD8-8694-0B7048E32DB4

The Court of Appeal of Alberta recently decided that Mortgagees or mortgage lenders have to be prudent in ensuring that they have written confirmation under their borrower’s insurance policy, that they are listed as a loss payable, instead of merely relying on the standard mortgage clause to think there is protection for them under the insurance policy.

In a unanimous decision, the Court of Appeal panel in Builders Capital (2014) Ltd v Aviva Insurance Company of Canada 2022 ABCA 120 agreed with the trial judge by holding in that case, despite any ambiguity behind the meaning of the phrase “the Mortgagee” in the standard mortgage clause included in the borrower’s insurance policy, based on the general rules of contract construction and the reasonable expectations of the parties, the term “the Mortgagee” only referred to the one Lender listed as loss payable on the policy and not all Lenders listed on title to the property.

The appellant mortgagees in this case only relied on the standard mortgage clause in the insurance policy and did not take further steps to confirm with the insurer that they were listed as a loss payable.   The Court of Appeal held that they did not have any coverage under the insurance policy because they were not listed as a loss payable under that policy.  This case cautions all Mortgagees that merely relying on standard mortgage clause in an insurance policy is not enough.  It cannot be assumed that just because there is a standard mortgage clause in a borrower’s insurance policy, that every mortgagee listed on title to the property will be covered under that policy.

For Mortgagees to properly allocate and avoid risk, additional steps must be taken such to ensure that they are listed as a loss payable under an insurance binder letter and that their name and address is correct.    While not directed in the case, the Mortgagee should also ensure that the policy is paid for and not expiring in the next 30 days.

This case tells us that the Standard Mortgage Clause does not automatically make a contract or connection between an insurer and any one mortgagee. The Mortgagees must make it clear to the insurers of the property that they seek to be covered under the insurance policy by providing the insurer with its contact information, its request to be listed as a loss payable under the policy, and to obtain confirmation in writing, from the insurer, that they are covered. Failing to do so and merely relying on a Standard Mortgage Clause will open the Mortgagee to the risk that their claim for coverage would be denied, leaving them with no further recourse for an insured peril loss

The pertinent facts of the case and summary of the decision is set out below:

• There was a material misrepresentation in application for insurance, which entitled the respondent insurer to void coverage
• On May, 2016, the residential property was damaged by fire
• Builder’s Capital sought to recover losses under the standard mortgage clause, which preserves coverage for “the Mortgagee” notwithstanding any misrepresentation attributable to or by the mortgagor.
• The Respondent insurer denied appellant’s claim on basis that the only mortgagee that the respondent was asked to insure was the Royal Bank of Canada (“RBC”) and not Builder’s Capital.
• The Trial Judge agreed with the insurer, finding that there was no insurance contract between the respondent and Builder’s Capital. The Trial Judge also found that there was no evidence that Builder’s Capital was aware of the respondent insurer, Aviva or that it relied on Aviva’s policy, in advancing their mortgage proceeds.
• Builder’s Capital appealed on the basis that the Trial Judge interpreted the term “the Mortgagee” too narrowly and should include all Mortgagees registered on title pursuant to the Standard Mortgage Clause contained in the policy of insurance.

Based on the evidence provided, the Appeal Judges agreed with the trial judge and found that at the time the insurer agreed to underwrite the policy, the insurer’s knowledge was that RBC was the on Mortgagee on title.  RBC provided the insurer with its full name and address which was shown on the insurance binder letter.   What made this worse for Builder’s Capital was that the insurer considered them to be a non-traditional Mortgagee.   Based on conversations between the broker and the insurer, the Court also considered that when requesting to add the Builder’s Capital  as a second Mortgagee to the insurance policy, the insurer never agreed to extend coverage to Builder’s Capital, and would have cancelled the insurance if Builder’s Capital was required to be added as a second Mortgagee.   This was all known prior to the Builder’s Capital advancing funds.

The Court used the general rules of contract construction in deciding what the parties’ understanding of the insurance policy coverage was. The Court noted that the word Mortgagee was capitalized throughout the Standard Mortgage clause, which signifies a specific mortgagee rather than any mortgagee.  Further, when looking at the responsibilities of each party. the Court observed the difficulty in situations of a loss to expect the insurer to send notices of the loss to Mortgagees that it was not aware of.  The Court decided that a broad interpretation of the phrase “the Mortgagee” would not work given the commercial reality that some equitable mortgage interests may not be registered on title.

The Prompt Payment and Construction Lien Act

The Prompt Payment and Construction Lien Act (PPCLA) is coming into force on August 29, 2022, through the passing of Bill 37, which amends the Builder’s Lien Act. The Builder’s Lien Act is amended to better ensure that payment of contractors and subcontractors is given in a timely manner, to protect jobs in the construction industry.

Differences between the Builder’s Lien Act and the PPCLA

The PPCLA introduces changes such as:

• a 28-day timeline for project owners to pay invoices to general contractors
• a 7-day timeline for contractors to pay subcontractors after the contractors receive payment from the project owners
• a 7-day timeline for subcontractors to pay its subcontractors after the subcontractors receive payment from the contractors
• Extending timeline for registering liens to 60 days for the construction industry, and 90 days for the concrete industry
• Increases the minimum amount owed that can be subject to a lien of $700
• Allows dispute resolution through adjudication, which is faster and less costly than going to court

Proper Invoice

The timelines above are affected by the proper invoice, which must be in place. A proper invoice is a request for payment in writing, and includes:

• Description of the work done
• Description of any materials provided
• Payment amount and a breakdown of payment for work done and materials provided
• The agreement to provide the work and materials in consideration for payment, and any other requirements as per the contract, such as whether subcontractors would be necessary
• Statement confirming that the invoice is intended to be a proper invoice

The proper invoice will be provided to the project owner by the contractor. The contractor must give a proper notice to the owner at least every 31 days, but the parties may come to an agreement to specify the terms as to when a proper invoice must be delivered.

Disputing a Proper Invoice – Dispute Notice

A project owner may dispute a proper invoice by delivering a notice of dispute within 14 days of receipt of the proper invoice. The contractor upon receiving the notice of dispute is then required to advise its subcontractors, if any, of the dispute notice. The subcontractor may ask the contractor to provide confirmation of the date as to when the proper invoice was provided to the owner.

The subcontractor responsible to the portion of the work relating to the dispute will be paid after the other subcontractors who provided work that is not contested by the project owner have already been paid.

If the project owner fails to pay the contractor for all or part of the proper invoice, the contractor is still responsible to pay its subcontractors within 35 days after the date the proper invoice was given. The exceptions to this would be if the payment is disputed, or if a deferral of payment was considered by the parties.

If the payment is disputed, the notice of dispute must specify the amount not being paid and the reasons for non-payment. The notice of dispute would alert the parties that the subcontractor’s entitlement to be paid is not completed not solely because of non-payment by the owner.

Another exception is deferral. For a deferral, a notice of non-payment must be done, which outlines the amount not being paid, along with an undertaking to refer the dispute with the owner to adjudication no later than 21 days after the notice of non-payment to the subcontractor.

Notices of dispute must be delivered by the contractor to its subcontractors within 7 days after the contractor receives an owner dispute notice, or if no owner dispute notice is received, within 35 days after the proper invoice is given.

Either the parties’ contract or the Judgment Interest Regulation will determine the rate of interest charged on any unpaid and due amounts previously considered in a proper invoice.

Adjudication under the PPCLA

The parties can provide a written notice of adjudication, which includes the names and addresses of parties in dispute, what the dispute is and its particulars, any remedies sought, and the name of the preferred adjudicator to conduct the adjudication. Examples of remedies that can be reached are order the non-paying party to make payment within a specified time, or allow the unpaid part to cease performing work until proper payment has been made.

It is important to note that adjudication is not possible if an action in court is already in place on or before the notice of adjudication is delivered. As such, it will be prudent, if any of the parties would like to consider adjudication, to immediately take steps so that court proceedings will not prevent adjudication from occurring.

Parties do not have to go through adjudication on all claims, and can choose to go to Queen’s Bench directly for their respective claim. However, choosing not to proceed with adjudication will only be a prudent decision if it is fairly certain that any attempt to adjudicate will be futile and not produce a reasonable result. Due to the benefits that adjudication presents, such as lower legal costs due to attempt to resolve sooner and outside of court, adjudication is recommended.

Adjudicators are qualified and appointed through nominating authorities designated by the Minister of Service of Alberta. Adjudicators are required to obtain a certificate of qualification from the nominating authority, and mast pass other requirements such as having at least 10 years of relevant work experience, and having sufficient knowledge in dispute resolution, contract law and the adjudication process.

Further Changes and Going Forward

The PPCLA also mandates the progressive release of holdbacks on an annual basis if the value of a contract exceeds $10,000,000 and if the contract does not provide for a holdback release on a phased basis.

There are also changes to Lien Registration Deadlines. The deadline for the registration of a builder’s lien under the PCCLA is now 60 days from the last day the services or materials were supplied. If the lien pertains to work relating to concrete the deadline is now within 90 days, which is similar to the deadline for liens relating to improvements to oil or gas well sites.

The Builder’s Lien Act will continue to apply to contracts entered into before August 29, 2022. Ongoing contracts that are continuing for more than two years must be amended to comply with the PPCLA.