This article addresses a recent decision of the Superior Court in respect of the transition provisions of Ontario's Construction Act ("Act"): specifically, the decision in HVAC Depot & Metal Mfg. Inc. v. Global HVAC & Automation Inc., 2024 ONSC 5752 ("HVAC Depot").
As readers will recall (or revisit based on our detailed summary here), the Act includes a transition provision in s. 87.3(1), allowing the former Construction Lien Act to apply to construction projects predating July 1, 2018 (whether that be due to the prime contract being executed prior to July 1, 2018 or if a procurement process was commenced by the owner of the premises prior to July 1, 2018). In such circumstances, the old deadlines for preserving and perfecting construction liens would apply.
The interpretation of this transition provision has been a point of contention for those involved in relevant projects, as it ultimately determines which legislation will govern, and the appropriate deadlines with which lien claimants must comply. HVAC Depot offers greater clarification as to when this transition provision will apply.
Below, we discuss the Court's decision and its helpful reminder regarding the definition of an "owner" under s. 87.3(1) of the Construction Act.
Factual Background
In October of 2016, Rose Acquisition Corporation ("Rose ACQ"), a subsidiary of the Rose Corporation ("Rose Corp"), entered into an Agreement of Purchase and Sale (the "APS") with Bridon Baker Developments Inc. to purchase land from Bridon. This purchase was intended to allow for the development and construction of a residential building project. In February of 2018, Rose Corp incorporated 175 Deerfield Inc. ("175") for the purpose of holding title to the relevant property, and 175 remained the registered owner throughout the duration of the project.1
In 2020, Rose Corp (who was not the registered owner of the property) retained KCL Group Limited ("KCL") as the general contractor. Construction commenced shortly after. KCL subsequently retained Global HVAC & Automation Inc. ("Global") as its mechanical subcontractor. Global then further subcontracted elements of the work to subtrades and suppliers.
In particular, HVAC Depot & Metal Mfg. Inc. ("HVAC") and Emco Corporation ("Emco") – collectively referred to as the "Lien Claimants" – supplied materials to Global for the project, with HVAC's last delivery occurring in December 2022 and Emco's in November 2022. For reasons not addressed in the Court's decision, neither HVAC nor Emco appear to have been paid amounts alleged to be owing to them in respect of their supply of materials and/or services. Having not been paid, the Lien Claimants subsequently registered liens against the title to the premises fifty-six (56) days after their last deliveries were made.
In response to the registration of these liens, KCL took the position that the liens were late given that they were registered more than 45 days after the date of alleged last supply. KCL brought a motion seeking a declaration that the liens expired prior to their registration under the "old" Construction Lien Act. They specifically took the position that the new 60-day registration window was not available to either of the Lien Claimants.
Therefore, the central issue before the Court was which legislation – the CLA or the CA – would apply to this case.
Decision of the Superior Court
The Court first identified the transition provision (s. 87.3(1)) of the CA), which provides in relevant part:
Continued application of Construction Lien Act and regulations
87.3 (1) This Act and the regulations, as they read on June 29, 2018, continue to apply with respect to an improvement if,
(a) a contract for the improvement was entered into before July 1, 2018; [or]
(b) a procurement process for the improvement was commenced before July 1, 2018 by the owner of the premises; [Emphasis added]
The Court also referred to s. 1(1) of the CA to clarify s.
87.3(1)(a) and 87.3(1)(b):
"contract" means the contract between the owner and the contractor, and includes any amendment to that contract."
[...]
"interest in the premises" means an estate or interest of any nature, and includes a statutory right given or reserved to the Crown to enter any lands or premises belonging to any person or public authority for the purpose of doing any work, construction, repair or maintenance in, upon, through, over or under any lands or premises;
[...]
"owner" means any person, including the Crown, having an interest in a premises at whose request and,
(a) upon whose credit, or
(b) on whose behalf, or
(c) with whose privity or consent, or
(d) for whose direct benefit,
an improvement is made to the premises but does not include a home buyer;
Thus, in determining whether s. 87.3(1) would apply, the Court needed to determine whether either or both of Rose ACQ or Rose Corp could be considered "owners" for the purpose of 87.3(1)(a) or (b).
In this context, the Court referenced the Court of Appeal's decision in Ravenda Homes Ltd v 1372708, which clarified that:
[T]he definition of owner under s. 1(1) of the CLA requires that an owner have "an interest in a premises" to which the improvement is made, not just an interest in the improvement. An interest in personalty or an interest in an improvement by itself, without an attached interest in land, cannot constitute a lienable interest.2 [emphasis added]
With this definition in mind, the Court ruled that neither Rose Corp nor Rose ACQ had an "interest in the premises" prior to July 1, 2018 for several reasons. First, the Court distinguished Rose Corp's and Rose ACQ's interest in the improvement of the premises from the legitimate proprietary interest required to be considered an "owner". While Rose ACQ held a contractual interest by virtue of being the contracting party to the APS, the Court held that a legal or lienable interest could not be established because the title of the property was held only by 175. Only the conveyance of title could create the necessary "interest" to be an "owner". There was no such conveyance to either Rose Corp or Rose ACQ.
The Court also considered whether Rose ACQ or Rose Corp could have an "interest in the premises" based on their connection to 175. However, it dismissed this argument, stating that the ownership of shares by one corporate entity was not enough to create an "interest in the premises" owned by another corporate entity. Rose Corp and Rose ACQ were legally distinct and separate from 175, and lacked any rights or interests in its assets (i.e., the premises). Accordingly, the "interest in the premises" held by 175 did not extend to either Rose Corp or Rose ACQ.
Furthermore, the Court observed that s. 32 of both the CLA and CA require the owner to be named in the certification of substantial performance. Since neither Rose Corp or Rose ACQ were identified as owners in the certificate, this further confirmed that these parties were not considered to be owners of the premises.
Based on these findings, the Court ruled that Rose Corp and Rose ACQ were not "owners" of the property, rendering s. 87.3(1)(b) inapplicable. In other words, even if any procurement activities on the part of either Rose Corp or Rose ACQ took place prior to July 1, 2018, neither Rose Corp nor Rose ACQ could rely upon them to argue that the former Construction Lien Act applied in the circumstances as they were not owners.
This conclusion that neither Rose Corp nor Rose ACQ were owners in the context of the premises also confirmed that s. 87.3(1)(a) did not apply, as neither Rose Corp nor Rose ACQ held the necessary "owner" status to enter into a "contract" as referenced in s. 87.3(1)(a). The relevant "owner" of the contract for the improvement would have to be 175. Additionally, the Court noted that Rose ACQ had not entered into any contract prior to July 1, 2018 in any event, further precluding the application of s. 87.3(1)(a).
As a result of the fact that the procurement activities of the two Rose entities were irrelevant to the transition provision, and given the fact that the only "contract" for the improvement took place in 2020, the transition provision was not engaged. In this regard, the 60-day lien preservation period of the Act applied instead, and the lien claimants had properly preserved their liens by registering their lien 56 days after the date of last supply.
Commentary
Notwithstanding that HVAC Depot does not break any new legal ground, it is nevertheless a helpful reminder as to how the transition provisions of the Act are applied and a warning to be clear on who you are contracting with for an improvement.
Notably, the decision reaffirms and clarifies that an "owner" (for not only the purposes of transition provisions, but the contract for the improvement itself) must have an "interest in the premises". While establishing an "interest" requires only "an estate or interest of any nature" and is a "low threshold" to meet, this "interest" must be an interest in the actual land itself.3 Merely signing an APS will not suffice if the title to the subject property is held by another entity.
Equally important is that this "interest" cannot be extended to a parent company solely by virtue of holding shares in a subsidiary that holds title to the property. This latter point will be of particular relevance to construction industry participants engaged on projects where, in practical terms, the de facto owner of the project has incorporated a special-purpose vehicle for the purpose of acting as the de jure owner of the project lands and/or 'owner' for the purpose of the prime contract. In that circumstance, lien claimants will need to be particularly mindful of confirming the version of the Construction Act that applies.
When owners are making corporate decisions in respect of property ownership, conveyancing and holding for other purposes, in addition to your corporate counsel, it would be worthwhile to also consult a construction industry lawyer to address any concerns you may have about the applicability of provisions of the Act. This is equally true of lien claimants who wish to deliver a claim for lien, which requires the proper identification of the owner (although such error is not necessarily fatal) – in the circumstances, lien claimants should proceed with caution and conduct the due diligence necessary to confirm ownership of the premises.
Footnotes
1 175 subsequently changed its name, but this detail is not relevant for the purpose of this case comment.
2 Ravenda Homes Ltd v 1372708, 2017 ONCA 834 at para 29.
3 HVAC Depot & Metal Mfg. Inc. v. Global HVAC & Automation Inc., 2024 ONSC 5752 at para 32.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
