Construction Law and Lien Claims: Understanding the Basics
Lien Claims: Understanding the Basics
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The Construction Lien Act (the ‘Act’) is intended to protect the interests of those who supply services or materials to a property improvement, so that the owner does not benefit from those services or materials without paying for them. The Act allows certain parties to place a lien on title to property in order to secure payment for services or materials supplied to improve a property. Once a lien is certified and perfected on title, the lien holder can eventually force the sale of the property in order to receive payment. Without the ability to lien property, it may be difficult to secure payment where the owner does not have any other assets.
Interpretation of the Construction Lien Act
The Courts have adopted a strict interpretation of the Act on who is entitled to lien. Once it has been determined that there is entitlement to a lien, the Courts will use a liberal interpretation of the Act to ensure that the Act meets its objective. The Supreme Court of Canada clearly stated these rules of interpretation in Clarkson Co. v Ace Lumber Limited.
Who can make a Lien Claim?
Any person or business who supplies services or materials to an improvement for an owner, contractor or subcontractor can lien upon the interest of the owner in the land for the price of those services or materials. Services can include any work done in respect of the improvement including renting equipment and creating designs, plans or drawings. Materials can include any type of movable property that is needed to make the improvement, or that will become a part of the improvement.
For example, if a subcontractor hires a business to supply materials to make asphalt, which is utilized in a construction project, that business could lien the owner’s property if they are not paid.
What is an Improvement?
An “improvement” occurs when there is an alteration, addition or repair to the land or when there is any construction, erection or installation on the land. Complete or partial demolition or removal of a building, structure or works on the land also qualifies as an improvement. If there is no improvement, there cannot be a valid claim for lien.
Here are some key things the Court will consider in determining if the work constitutes a lienable improvement:
- The nature of the project
Projects relating to fixtures on the land are often considered an improvement, as opposed to projects relating to chattels that can be removed from the land. While this may seem like a simple distinction, in reality the distinction between what is a fixture as opposed to a chattel can be blurry. For example, the Courts have ruled that laundry facilities and portable schoolrooms are chattels, but cabinets and counters are fixtures, even though all of these items can be removed from the property.
In Baltimore Aircoil of Canada Inc. v Process Cooling Systems Inc., the Court determined that work related to a water cooling system was not an improvement because the system was not incorporated into the building and could be removed.
- The connection between the materials and services supplied and the project
The Court will consider the timing of the work for liens for services provided. Services such as security or property management are lienable if they were completed during construction and the work directly relates to the construction project. After the project is completed, any services provided to the property are no longer lienable.
In Southdale Towers Ltd. v Carlton Management Group Inc., the Court determined that property management services in relation to renting units, enforcing leases and purchasing and supplying appliances for the units were not lienable because those services did not relate to an improvement and did not necessarily occur during a construction project. However, other property management services, such as supervising repairs on the property may be lienable if they occurred during and in direct relation to the improvement project.
Similarly, in Kennedy Electric Ltd. v Rumble Automation Inc., the Court determined that work related to trucking services to transport materials was not an improvement because the services were merely incidental to the improvement.
- Whether the work or service enhanced the value of the property
The Court will deem the supply of services or materials to be lienable where they add value to the property. The Courts will examine each situation to determine if value has been added. Sometimes demolition services are considered to add value, because the work needs to be completed before other work can be done to add value to the land. In other situations where work was started and not completed the Court may determine that value was not added.
In 1246798 Ontario Inc. v Sterling, an architectural firm supplied drawings to a project that the owner did not move forward with. In this situation the Court found that the drawings still added value to the project because the owner could use them in the future if they decided to move forward with the project.
What Services are Lienable?
While it often depends on circumstance to determine if services are lienable, Courts have recognized various services, such as engineering services, disposal services and consulting services, as lienable. Other services, such as legal services, transportation services and project management, have not been recognized as lienable. However, there can be exceptions depending on the circumstances discussed.
Please contact Michael Paiva for more information about the Construction Lien Act, or if you require assistance with asserting or defending a claim for lien.