Builders and developers should be aware of the impact of recent amendments to the Construction Lien Act. The amendments were made by Bill 68, also known as the Open for Business Act 2010. Bill 68 was given royal assent on October 25, 2010.
The Bill impacted the Construction Lien Act in four significant ways:
I. Changes to Liening a Condominium Project
II. The End of the Affidavit of Verification
III. The Death of the Sheltering Statement
IV. Statutory Correction of the Definition of Improvement as set out in Kennedy Electric.
The highlights and practical impact of these changes follow.
I. Changes to Liening a Condominium Project
The Condominium Act makes any “encumbrance” against common elements of a condo enforceable against all the units of common interest after “registration”, meaning that before registration under the Condominium Act, the future condominium land can be liened using the regular process. After registration, every unit in a condominium needed to be liened if someone wished to lien the common elements. Clearly, this was prohibitively expensive for small contractors, as it would require that the personal identification number (PIN) and identities of every unit owner be known.
The Bill 68 solution to the high cost of liening condominium common elements is to require developers to publish their intent to register in a construction trade paper (The Daily Commercial News) at least five days, and not more than fifteen days before registration.
This notice requirement means that contractors will receive sufficient notice of pending registration and therefore be able to preserve their liens before it becomes too expensive to do so. From a practical standpoint developers should be aware of the notice requirements and contractors should pay attention to The Daily Commercial News.
II. The End of the Affidavit of Verification
Before Bill 68, the Construction Lien Act required any claim for lien to be verified by the person claiming the lien. Bill 68 did away with this affidavit requirement.
This means a couple of things. Firstly, a lien will no longer fail on the technicality of not properly serving an affidavit. Secondly, it gets rid of an antiquated sworn affidavit requirement that is impractical in the current electronic registration system for real property.
Bill 68 has replaced the sworn affidavit requirement with Affirmation of Facts statements that are optional to the lien party when creating the electronic construction lien document.
III. The Death of the Sheltering Statement
Previously, when a lawyer went about vacating a lien on the e-registration system they were required to certify through the use of certain form statements whether or not there were lien claimants sheltering under the certificate of action that was being vacated from title, and if that action was being dismissed in the process. These were known amongst lawyers as sheltering statements.
The sheltering statements were problematic for several reasons. Firstly, determining if there is a sheltering lien is a complicated legal task with broad implications. A lawyer from a mere review of title should not undertake such a task. Secondly, for condominiums, a lawyer had to search every single PIN in order to make the sheltering statement, which resulted in higher costs for the client. Lastly, from a practical standpoint lawyers were very reluctant to make a sheltering statement because of the uncertainty and potential liability to an aggrieved sheltering lien claimant.
Bill 68 corrected these problems by permitting a sheltered claim to continue, even if the original claim filed by a third party has been vacated by a court. This amendment should nullify sheltering statements, since no prejudice could result to the sheltered lien claimant as a result of the Certificate of Action being vacated.
IV. Statutory Correction of the Definition of Improvement as set out in Kennedy Electric.
Prior to Bill 68, improvement basically referred to (a) any alteration, addition or repair to land, or b) any construction, erection of installation on land.
Judges have interpreted the Construction Lien Acts definition of improvement to mean that the installation of machinery in a business operated in a building will not give rise to lien rights; particularly where the machinery is portable, since movable machinery does not become part of the building in which it is located, it does not improve the building.
This judicial definition of improvement led to some absurd results. One case that raised some eyebrows was Kennedy Electric. In this case a sub-subcontractor was hired to install a new F-150 assembly line at a Ford plant in St. Marys, Ontario. That sub-subcontractor was denied a lien action because the new assembly line was deemed by judges to not be an improvement. Many were surprised that the installation of machinery as massive as an assembly line would not constitute an improvement for the purposes of the Act. Bill 68 remedied the act to prevent results such as that in Kennedy.
In respect to any land, improvement now means (a) any alteration, addition or repair to the land, (b) any construction erection or installation on the land, including the installation of industrial, mechanical, electrical or other equipment on the land or on any building, structure or works on the land that is essential to the normal or intended use of the building structure or works, or (c) the complete or partial demolition of any building structure or works on the land
In sum, under the former definition of improvement, where services or materials were supplied in respect of a moveable manufacturing or similar installation that was not an integral part of the building, and which did not become a part of the building, lien rights did not arise, although portability was largely a factual determination. Now, improvement has been broadened to include “the installation of industrial, mechanical, electrical or other equipment” that is “essential to the normal intended use of the land, building or structure works”.
Charles P. Criminisi
Real Estate
