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Construction liens are a means by which contractors, subcontractors or any person who supplied materials or services to a construction project may secure payment if payment is not forthcoming via the construction pyramid.
The Construction Act (the “Act”) states that “a person who supplies services or materials to an improvement for an owner, contractor or subcontractor, has a lien upon the interest of the owner in the premises improved for the price of those services or materials.”
According to the Act, an “improvement” occurs when there is an alteration, addition or capital repair to the land or when there is any construction, erection or installation on the land. Capital repairs are a new addition to the Act and are services which are permanent in nature that increase the value of the land, building or structure of works.
This is distinguishable from maintenance work which is considered to be more temporal in nature. 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.
Supply of Services
The “supply of services” is defined in the Act as any work done or services performed on an improvement, including the rental of equipment or the supply of a design, plan, drawing or specification that enhances the value of the owner’s interest in the land. Services include work performed at the site and some off-site services.
The onus is on the lien claimant to prove that the services they supplied to a project meet the test for lienable services.
The “Nexus Test” as discussed in Toronto Dominion Bank v 450477 Ontario Ltd. provides the appropriate test when determining if services supplied to an improvement, whether supplied on-site or off-site, are lienable services.
The Nexus Test considers:
- Whether the services were viewed by the construction parties (i.e. the owner, general contractor, etc.) as being necessary for the completion of the project; and
- Whether the services benefitted all of the construction parties.
While each situation needs to be evaluated on a contextual basis to determine whether certain services are lienable, the following services may be lienable:
- Construction Services
- Architectural Services
- Disposal Services
- Remediation Work to Remove Environmental Contaminants
- Site Surveying
- Engineering Services
The following are examples of services that are generally not lienable services, however some exceptions may apply:
- Deficiency Work: minor deficiency and repair work are not lienable. This is extremely important when calculating your lien period since the Act provides for strict timelines of 45 to 60 days to preserve lien rights (depending on whether the new or old Act applies). Attending at the site to do minor repair work will not extend the lien period.
- Property Management Services: property management services related to renting units and enforcing leases are not lienable because they do not relate to the construction of the property. However, property management services related to supervising construction or repairs may be lienable if they occurred during and in direct relation to the improvement.
- Maintenance Work: maintenance work that prevents the normal deterioration of the land, building, structure or works are excluded from the Act.
- Legal Services: legal services are generally considered to be too remote to give rise to lien rights.
- Snow Removal: snow removal has not been found to give rise to lien rights as it does not constitute an improvement to the land.
- Transportation of Materials: courts have determined that trucking services to transport materials do not constitute an improvement to the property. This differs from disposal services, which offer more than just the transportation of materials.
- Landscape Maintenance Work: maintenance landscaping work, such as cutting grass or other work to preserve the state of the property, are generally not considered lienable services. Landscape works that improve the property such as supplying gravel, soil or plants may be lienable.
Supply of Materials
The Act defines “materials” as any moveable property that:
- Becomes, or is intended to become, part of the improvement;
- Is used in, or used to facilitate the making of the improvement; or
- Equipment rented without an operator for use in the making of the improvement.
Toronto Dominion Bank v 450477 Ontario Ltd. clarified that the legal test for the supply of materials is the same Nexus Test as detailed above. Essentially, the lien claimant needs to prove:
- Their supply was accepted by the contracting parties as being necessary for the completion of the improvement; and
- The supply benefitted all contractors and subcontractors.
- Construction Materials: such as bricks, drywall, lumber and other building materials.
- Landscaping Materials: such as plants, soil, gravel and other materials used in improvements to the property.
- Equipment Rentals: such as lifts, bulldozers, forklifts and other equipment that can be rented without an operator.
- Chattels or structures that can be removed from the property such as water-cooling systems, window blinds, furniture, etc.
If you think you may have lien rights pursuant to the Act, seek legal advice promptly from a lawyer experienced in construction law. There are very strict timelines in place for preserving and perfecting a construction lien. If you fail to meet these deadlines, you will not have a valid lien claim.