In the absence of adequate proof of added value, the contractor cannot benefit from a legal mortgage.
A creditor, like a contractor, must evaluate whether the funds invested in a building for the purpose of work generate an equivalent increase in value.
Thus, a company, after acquiring a building for $695,000, mortgages it in favor of a creditor for an amount of $750,000. A contractor carries out various work on this building and, due to non-payment by the company, registers legal liens on the property totaling $558,000. Following forced abandonment procedures, the building is sold under judicial control for the amount of $675,000.
The legal liens are then given first priority, leaving the initial mortgage creditor with practically nothing. Dissatisfied, the latter turns to the Court* and reminds it that:
- normally, the legal construction lien takes priority over a previously registered conventional mortgage, but "only to the extent of the increase in value given to the property";
- the increase in value is unique for all the work;
- the increase in value requires a comparative analysis of the value of the property before and after the work;
- the value of the property is determined at the end of the work and not at the time of the sale.
After this reminder, the court concludes that the evidence on record demonstrates that the specificity of the work performed results in "a lack of increase in value, even requiring costs to remove certain elements", which means a negative value for the buyer (of the property).
The court orders that the contractor's legal liens be removed "in the absence of adequate proof of an increase in value".
As the Latin proverb says, "the burden of proof lies with he who asserts and not he who denies".
*CA 500-09-021702-113
