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Canada: Lien On Me: Purchasers As Secured Creditors

Canada: Lien On Me: Purchasers As Secured Creditors

Pan Canadian Mortgage Group v. 679972 B.C. Ltd., 2013 BCSC 1078 (Pan Canadian), addresses the nature and priority of a purchaser's lien, which, in general terms, is a financial charge that results when a purchaser pays a deposit toward the purchase price under a contract of purchase and sale.

In Pan Canadian, a construction lender had foreclosed on a development property and the money owed to it was fully satisfied by a portion of the proceeds of the resulting sale. The remaining balance was paid into court, leaving two groups of creditors, whose collective claims exceeded the remaining balance, to dispute their relative priority to repayment.

The first group consisted of purchasers who had paid deposits for townhomes which were never built by the owner-developer. The second group consisted of secured creditors who had registered judgments against the property.

In order to determine the priority of the two groups of creditors to repayment of the amounts owed to them, the chambers judge considered whether the purchasers held purchasers' liens. She stated that
a purchaser's lien is a "well-established equitable charge over property that arises at the time a purchaser of property provides a deposit or funds to the vendor or their agent in part or whole payment of the purchase price." According to the chambers judge, such payment is security for the completion of the purchase and, if the purchaser fails to perform, the vendor has security against the funds, whereas if the vendor fails to perform, the purchaser can recover the funds and is entitled to a lien over the property and is a secured creditor.

The purchasers of the townhomes were able to establish that they had purchasers' liens because they had provided funds to the vendor for the purchase of land, but the contracts did not complete through no fault of the purchasers. The parties had agreed that, if the purchasers established that they had purchasers' liens, the liens would rank in priority to the judgments of the other secured creditors. Accordingly, the purchasers were entitled to be paid out in priority to the secured judgment creditors.

Pan Canadian is important because it confirms that, where a purchaser's lien is established, the purchaser may become a secured creditor of the vendor with a lien over the property. Purchasers should nonetheless be aware that, because a purchaser's lien is an equitable remedy, granted in the discretion of the court, purchasers may succeed in establishing such a lien only if they have performed their obligations under the contract and, as such, come to the court with "clean hands."

The decision is under appeal.

Source: www.mondaq.com