December 28, 2009

Legal affairs

In tough economic times, understanding construction liens is essential

DAN O’REILLY

correspondent

In today’s turbulent economy, it is even more important contractors and subcontractors fully understand their lien rights if they want to survive. This message was delivered by Bruce Reynolds, a partner with Borden Ladner Gervais LLP, at a recent Canadian Institute Construction Superconference.

“These days the telephones are ringing in the offices of Ontario construction lawyers,” said Reynolds in a summary of the market realities the industry now faces, such as increased pressure by banks to renegotiate loan terms.

An essential chore for contractors is to fully understand the Ontario Construction Lien Act to make effective use of the remedies it offers them. Reynolds said this is not easy, as the Act is one of the most complex pieces of legislation of its kind in the world.

Lien rights expire 45 days after the Certificate of Substantial Performance has been published and once that occurs a lien can never be revived, he pointed out.

A lien is simply the right of a “person, who supplied services or materials to an improvement” to sell the property on which the improvement was made so that value of services or materials can be recovered.

A person can include a contractor, subcontractor, worker or design professional and “certain types of suppliers.”

And it was that particular phrase that framed a good part of his presentation and sparked some probing questions from the audience, many of whom were lawyers and public sector officials as opposed to contractors.

An entitlement to lien arises when a person has supplied “lienable” services or materials to a construction improvement.

An improvement is defined by the Act “as any alternation, addition, or repair to any construction, erection or installation of any land includes the demolition or removal of any building, structure or works, or part thereof.”

What constitutes an improvement from the perspective of some contractors and suppliers doesn’t always mesh with realities of the Act, he pointed out.

This is especially the case in many industrial construction projects where “the base building is very much an accessory to the equipment which is often fabricated off site.”

This has the potential for disputes over whether certain work, such as mechanical or electrical installation, is really construction or part of the equipment installation process, said Reynolds.

To illustrate that point, he summarized the implications for the construction industry of the Kennedy Electric decision.

Lower court decisions on this case were upheld when a leave to appeal to the Supreme Court of Canada was dismissed. That dismissal effectively ended long legal efforts by Kennedy Electric and Cassidy Industrial Contractors, which had registered liens against a property owned by the Dana Canada Corporation for the design and installation of an assembly line in a Ford truck plant.

The courts ruled the assembly line did not fall within the definition of “an improvement” because the assembly line was portable.

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