Unpacking Encumbrances: What are the Instruments that Bind our Assets?

By: Seanachie Clark, Student-at-Law

Encumbrances are instruments that can bind our property, but there may be some confusion surrounding what they are, how they work, and what their differences are.

Some common types of encumbrances are liens, caveats, Certificates of lis pendens, and writs.

The similarity between these encumbrances is that they all function as a way for a creditor to secure assets to ensure the payment of a debt, but they all have their own function.

While an encumbrance does not necessarily prevent transfer of title, it can significantly affect the rights of an owner and the interests of prospective purchasers, lenders, and other parties.

Understanding the distinctions between the various types of encumbrances is essential for anyone involved in property transactions.

Liens

A lien is a legal claim on a property placed by a creditor. The effect of a lien is that, if a debtor does not pay their debt, the creditor can take ownership of the property to fulfill the debt. 

One of the most common types of liens are those that are placed on a property by a builder.

For example, if a property owner contracts a building company to perform maintenance or upgrades on the property and subsequently does not pay the invoice for the work, the builder can place a lien on the property for the amount of the unpaid invoice plus any applicable interest.

The effect of this is, when the property owner wants to sell the property, they must pay off the lien before doing so.

Caveats

A caveat is a notice of interest in land that is registered on the title to a property. The Latin translation of “Caveat” is “let him beware.”

Essentially, a caveat gives a warning to anyone searching the title that another party has claimed an interest in that land. 

Caveats function to secure priority for the caveator’s interest in the property. 

A caveat could be notifying an interested party that another party has a financial interest in the property or may be claiming partial ownership. 

Unlike a lien, which is a notice of money actually owed, a caveat is simply a pre-emptive warning to interested parties that another party has an interest in the property.

Certificates of Lis Pendens

A Certificate of Lis Pendens, or CLP, is a certificate registered on the title of land giving warning that there are legal proceedings pending that may involve the property in question.

CLPs are used when there is a lawsuit, and the Plaintiff wants to protect their interest in the Defendant’s assets to ensure they can collect what they are owed if they are granted a judgment.

Essentially, a CLP puts a pause on the Defendant’s right to sell or otherwise dispose of the property before the lawsuit has concluded. 

Once a lawsuit has concluded, if the Court has decided in the favour of a CLP-holder (usually the Plaintiff), that party can now place a writ on the property and collect what they are owed.

Writ of Enforcement

A writ is a Court Order that allows a party to collect an amount owing to them.

Once a party has a Judgment from the Court, they may register a writ on the debtor’s property to secure their interest and collect the debt owed to them.

A writ prevents the property owner from selling or otherwise encumbering the property.

Once a writ is placed on the property, the debtor may pay the amount owing in exchange for a discharge of the writ, or, if the debtor is unable or unwilling to do this, the creditor may force the sale of the property in order to recover what they are owed.

Why a Real Estate Lawyer in Edmonton Should Review Property Encumbrances Before You Buy

While all the above encumbrances can have overlapping effects, they all play a specific and important role in the debt collection process.

It is important to know what each of these instruments can do and how they affect the rights and remedies of both creditors and debtors.

When you are considering purchasing property, it is important to conduct a title search to identify all registered encumbrances.

If you are buying, selling, refinancing, or dealing with a property that may be affected by a lien, caveat, Certificate of Lis Pendens, or writ, the experienced real estate team at SB LLP can help. Our lawyers provide practical guidance on title issues, property transactions, and encumbrances to help protect your interests and avoid costly surprises. Contact SB LLP today to discuss your real estate matter and ensure your transaction proceeds with confidence.