Builders lien alert: Shimco Metal Erectors Ltd.

A recent decision of the Supreme Court of British Columbia considers the remedies available to a subcontractor that lost its lien against the land as a result of failing to register a certificate of pending litigation in the applicable Land Title Office within the one-year period stipulated by s. 33(1) of the Builders Lien Act (the "Act"): Shimco Metal Erectors Ltd. v. Design Constructors Ltd., 2002 BCSC 238.

The Court in Shimco concluded that the subcontractor had both a lien against the property and a separate and distinct lien against the holdback monies. As a result, the subcontractor was entitled to share the holdback monies pro rata with those claimants with liens validly registered against the land.

The decision has wide-ranging ramifications. When a lien against the land itself is lost, whether because it is out of time or for any other reason, Shimco stands for the proposition that a lien may exist against any remaining holdback monies. As a result, if you are acting for a lien claimant whose lien against the land may prove unenforceable, consider asserting a lien against the holdback monies at the earliest possible moment, before the funds are paid out.

As a result of this decision, lawyers acting for owners must consider liens that are not registered against the property, as well as liens that are registered, when dealing with holdback monies. It is not clear what degree of notice of a claim of lien against the holdback monies an owner would require to be bound by the lien. Paying the holdback monies into court under s. 23 of the Act might be the prudent course to adopt, given the potential uncertainty.

The decision is currently under appeal. CLE's B.C. Builders Liens Practice Manual will reference the decision in its 2002 update.

Please direct any questions or comments to John Nalleweg (604) 605-5327, Edna Ritchie (604) 443-5763 (eritchie@lsbc.org) or Chris Bolan (604) 605-5349 (cbolan@lsbc.org), Claims Counsel, Lawyers Insurance Fund.

"Springing" Power of Attorney invalid

In light of another BC Supreme Court decision from earlier this year, it may now be impossible to create a power of attorney that will "spring" into effect when the donor becomes mentally incapable.

At common law, a power of attorney ceases to be valid when the donor becomes incapable. Powers of attorney that "endure" the donor's incapability are creatures of statute. Section 8(1) of the Power of Attorney Act (the "Act") provides, in part, that the authority of an attorney under a written power of attorney that specifies that the authority is to "continue despite any mental infirmity of the donor" is not terminated only because of the donor's subsequent mental infirmity.

In Goodrich v. British Columbia (Registrar of Land Titles), 2002 BCSC 599, Wedge J. concluded that a power of attorney intended to spring into effect on the mental infirmity of the donor was not a power of attorney for the purpose of s. 8(1) of the Act. If such a power of attorney is not a power of attorney under s. 8(1) and if, at common law, a power of attorney ceases to be valid when the donor becomes incapable, then such a "springing" power of attorney has no basis at law.

The facts in Goodrich are not remarkable. The donor, Ms. Parnall, granted a springing power of attorney to her nephew in 1995. The power of attorney specified that it could "only be exercised during any subsequent infirmity" of Ms. Parnall.

In 2001, a long-term assessor determined that Ms. Parnall could no longer care for herself, and Ms. Parnall was placed in a long-term care facility. Ms. Parnall's nephew decided to sell her condominium and use the proceeds for her care and maintenance. He sold the condominium to a third party, and executed the transfer as Ms. Parnall's attorney.

The Registrar of Land Titles rejected the transfer on the basis that the power of attorney was not a power of attorney for the purpose of s. 8(1) of the Act and had therefore expired under s. 56 of the Land Title Act. Section 56(1) of the Land Title Act provides that, with certain specified exceptions, a power of attorney expires for land title purposes three years after it was executed; s. 56(3), however, provides that a power of attorney under s. 8(1) of the Act remains valid until an order terminating the power of attorney is filed in the land title office.

Wedge J. ruled that the Registrar was correct in rejecting the power of attorney on the basis that it was not a power of attorney under s. 8(1) of the Act and so had expired. Wedge J. expressed the view that ". the authority cannot 'continue' in force following mental infirmity if the authority was not in force before the mental infirmity occurred." In other words, because the power did not "spring" until Ms. Parnall became mentally infirm, the authority could not be said to "continue" despite her mental infirmity.

An appeal of the Goodrich decision has been filed.

It should also be noted that, in his recent report to the Attorney General reviewing representation agreements and enduring powers of attorney, UBC Professor A.J. McClean recommended legislative amendment to the Act to specifically provide for springing powers of attorney.

Unless the Goodrich decision is reversed on appeal or a legislative amendment is made, however, lawyers should not prepare powers of attorney intended to spring into effect on the donor's mental infirmity. Lawyers may want to contact clients who previously signed springing powers of attorney to discuss whether those clients wish to make new, immediately effective, powers of attorney.

Please direct any questions or comments to: Kerry D. Sheppard at (604) 443-5743 or Stuart Cameron at (604) 443-5764, Claims Counsel, Lawyers Insurance Fund.

Missed limitations in commencing actions for Part 7 benefits

The Lawyers Insurance Fund has recently experienced an increase in reports of claims arising from counsel's failure to commence Part 7 actions within the limitation period. Section 103 of the Insurance (Motor Vehicle) Act requires such actions to be brought within two years of either the date of the accident or the last Part 7 payment. Assuming entitlement, the failure to commence the Part 7 action in time allows ICBC to argue that the amount of the tort award ought to be reduced by the value of the Part 7 entitlement.

Although the limitation can be met by a lawyer routinely diarizing the date for filing the Part 7 writ to coincide with the date for filing the tort writ, this may result in the Part 7 writ being filed before a cause of action has actually arisen. ICBC frequently declines to pay disbursements for such routine filings.

Alternatively, counsel may wish to simply enter the filing of a Part 7 writ as part of the firm's general diary system. In light of the fact that the limitation date for filing the writ is a "moving target," extended with each Part 7 payment, effective maintenance of this diary system requires a high level of communication with both the client and the claims adjuster.

A lawyer may wish to consider limiting the scope of a retainer so that he or she is clearly dealing only with the tort aspects of the claim. This may not be a satisfactory solution, however, as many clients will inevitably seek the assistance of counsel in dealing with ICBC on Part 7 matters. Care must also be taken to ensure that any restriction on the retainer is clearly communicated to and accepted by the client, and that the client receives sufficiently detailed information to protect his or her own interests in respect of any Part 7 benefits.

The appropriateness of any of these loss prevention suggestions will depend on the facts and circumstances of the particular matter, as well as the specific requirements of the client. Ultimately, lawyers can help avoid missed limitations in their own firms through heightened awareness of the risk, vigilance and implementation of systems to manage the risk.

Please direct any questions or comments to Ian D. Maclaren, Claims Counsel, Lawyers Insurance Fund, by telephone at (604) 443-5765 or 1-800- 903-5700 (toll-free within BC) or by email to imaclaren@lsbc.org).

Property transfer tax misunderstandings

The Lawyers Insurance Fund has encountered several scenarios in which lawyers have misunderstood the operation of the property transfer tax regime. A visit to the Property Transfer Tax Branch of the government website at www.sbr.gov.bc.ca/business/property_taxes/property_transfer_tax/ptt.htm (as updated) is recommended for anyone practising in the area of real property law.

For any lawyer who is unsure about the operation of the Property Transfer Tax Act (the "Act") or its regulations and policies, a review with a senior staff member of the Branch or an advance ruling is recommended.

Subdivisions and related exemptions

The Act provides for exemptions for certain property transfers undertaken to subdivide land, if the original owners have the same proportionate share of the fair market value of the land both before and after the subdivision. Briefly, the provisions relating to these exemptions are as follows:

  • Subdivision of a single parcel - sections 14(3)(j) and 3(3.2) of the Act and exemption code 34.
  • Subdivisions of two or more adjacent parcels - sections 14(4)(k) and (k.1) of the Act and exemption code 10.

The exemption provisions are complex and the requirements of the Act must be followed precisely. A failure to meet the requirements can result in tax being payable with respect to the transfer of all of the parcels in the subdivision, even though the variation of proportions after subdivision may be slight.

In most situations involving a subdivision, an advance ruling from the Property Transfer Tax Branch is highly recommended. The website contains information on how to satisfy subdivision requirements and how to obtain an advance ruling.

Lease modifications

Under the Act, the tax payable on the registration of a lease modification agreement, which extends the term of a lease, is treated differently from the registration of the original lease. A lease that is registered in the Land Title Office at a point in time when less than 30 years remains on the term, including all renewals and extensions, is eligible for an exemption from tax under section 14(4)(o) of the Act and exemption code 17.

However, the number of years remaining on the term of a lease is not relevant when it comes to registration of a lease modification agreement. In other words, if the term of the lease is 30 years or more when adding together all of the original term, any potential renewal or extension in the original lease, and any additional term or renewal or extension option under the lease modification agreement, then tax will be attracted when registering the lease modification agreement: see sections 9(1) and (2), and 10(1) to (3) of Regulation 74/88, as amended; in particular, see section 10(2)(a), which provides that, when calculating the term of the lease modification agreement, the unexpired portion of the term of the lease is not relevant.

Trust transfers of principal residences between related individuals

In certain circumstances, the Act allows for the exempt transfer of principal residences and some farm properties between related individuals. In particular on fulfilment of certain other conditions, section 14(3)(d) of the Act allows for an exempt transfer from a trustee under a registered trust to a beneficiary of the trust, if the settlor and the transferee beneficiary are related individuals. Generally, for property transfer tax purposes, a person cannot be "related" to him or herself; thus, in the ordinary course, the settlor and the beneficiary cannot be the same person and still qualify for the exemption.

For more information, please contact Marlon Song at the Lawyers Insurance Fund.