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December 20, 2024
Must an Owner have an actual interest in the subject lands to have commenced a procurement process under the transition provisions of Ontario’s Construction Act? Conflicting Decisions go to Appeal
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As most everyone in construction in Ontario is aware, sweeping changes were made by way of the Construction Lien Act Amendment Act, 2017, SO 2017, c 24. Among other things, the Amendment Act changed lien expiry triggers and timelines, altered holdback provisions and introduced sweeping prompt payment and adjudication provisions. The changes were scheduled to come into force at different points over time, relative in most cases to when “a procurement process for the improvement was commenced” by the “owner of the premises” pursuant to s. 87.3 of the Construction Act, 1990 c.C30 (the “Act”). The transition provisions under s. 87.3 are accordingly important: they determine what rules contracts or subcontracts vis-à-vis lien expiry timeframes and whether prompt payment or adjudication applies.
Unfortunately, the wording of the section has given rise to substantial confusion and concern. In particular, given the Divisional Court’s decision in Caledon (Town) v. 2220742 Ont. Ltd. o/a Bronte Construction, 2024 ONSC 4555, and to understand their rights and obligations, construction participants must determine when the Owner first procured or entered into “a contract” (not “the contract”) for the improvement. In this regard, if the Owner previously procured a different unrelated contract for the improvement from a different contractor (for example, by retaining a geotechnical contractor to perform site investigations for the same project as a first step some number of years ago), the “old rules” might apply to a subsequent general contractor (and its subcontractors) retained to build the project. As a result of this, sophisticated entities make early “s.39” requests of the owner to ask when “an applicable procurement process was commenced” and knowledgeable lawyers recommend that, when in doubt, liens be preserved on the “old” 45-day timeframe. We have seen many-a-circumstance where liens have expired because claimants believed they were working under the “new” 60-day lien expiry timeframe.
The Court’s interpretation and application of s. 87.3 is accordingly important. Recently, two cases were heard in Ontario’s Superior Court over whether or not, for the purposes of determining when a procurement process was commenced for the purposes of the section, “the owner of the premises” had, at that time of the commencement, to have an interest in the land on which the improvement was built. The Court came to a different conclusion in each case.
In HVAC Depot & Metal Mfg. Inc. v. Global HVAC & Automation Inc., 2024 ONSC 5752, where Rose Corp. alleged that it was the owner for the purpose of the process, Justice McCarthy held at para 29-32:
“[29] While Rose Corp. certainly maintained an interest in the project and in the improvement through its contractual dealings, at no time before July 1, 2018 can it be said that it had any interest in the premises. It also cannot be said that Rose ACQ had such an interest even though it entered into an APS for the purchase of the premises.
[30] Neither Rose Corp. nor Rose ACQ ever held a legal or lienable interest in the land as of June 29, 2018.
[31] Even if Rose ACQ obtained some interest by virtue of being the contracting party to the APS, no legal or lienable interest can be established by an APS. It is only the conveyance of title that would create that interest. Moreover, Rose ACQ never entered into any contracts with agents, contractors, construction managers, etc. prior to July 1, 2018 so as to engage the transition provisions in the Act and maintain the shorter lien preservation time requirements in the old CLA.
[32] While an “interest in premises” requires only “an estate or interest of any nature”, neither entity crossed even that low threshold. Neither of them acquired an estate of any nature. I am not persuaded that ownership of shares by one corporate entity creates an interest in premises owned by another corporate entity.”
In Dalren Limited v. Loadstar Trailers Inc., 2024 ONSC 7144, 1978317 Ontario Ltd. (“197”) ultimately owned the land on which the project was built. It had previously sought a quote from the contractor who ultimately entered into a contract to build the same building on other lands. Justice Charney held at para 40:
[40] In my view, 197 qualifies as an “owner” under the Act, because the manufacturing facility (the improvement) was built at Dodge Street “at the request of” 197 and on its behalf and for its direct benefit. It does not matter that 197 was not the registered owner of the Dodge Street property when the procurement process began, or even when the Contract was signed on December 11, 2020. At the time the improvement was made, 197 had a lienable “interest in the premises” upon which the improvement was made and is an owner under the Act and for the purposes of s.87.3.”
In Dalren, His Honour did not expressly consider Justice McCarthy’s decision in HVAC Depot. It also appears that His Honour may have misunderstood the extent to which an Owner can have a “lienable interest in the premises”.
Regardless, steps to appeal from each of the HVAC Depot and Dalren decisions are (or will be) under way, the former as a motion for leave to the Divisional Court and the latter to the Ontario Court of Appeal (as it was made in an Application). We will keep our readers informed as to the results.
Robert J. Kennaley and Joseph E. O’Hearn
