March 6, 2018
The potential lien for maintenance work in Ontario — and beyondBY ROB KENNALEY AND JOSH WINTER
Landscape contractors and subcontractors in Canada have grappled, for many years, with whether or not they have lien rights for the services and materials they provide. Historically in this regard, Canadian Courts have generally found services such as snow removal and grass-cutting do not amount to an “improvement” and do not give rise to lien rights, although there is not as much clarity in the law as we might like. Construction lawyers, in addressing the issues, have generally drawn a distinction between actual construction (which is considered lienable) and maintenance (which is not). Conventional wisdom, we would say, is that you will have lien rights if you lay sod or install pavers but would not have lien rights if you merely cut the grass or plow the snow. The distinction is not as clear as it could be, however, and there are a litany of other services that have been the topic of debate.
Recently in Ontario, in US Steel Canada Inc., Re, 2016, the Court considered a case where US Steel Canada entered into a landscape contract with a contractor whereby the contractor would provide landscape services to the site three days a week. A dispute in relation to payment arose and the contractor subsequently registered a lien against the land and commenced an action. A question arose as to whether the work done or materials supplied amounted to an “improvement” under the Act.
The Court found the following supply of goods and services gave rise to lien rights: (a) the adding of soil and the supply of 15 flower plants; (b) spraying for weeds where the contractor provided their own material; and (c) removing weeds, spreading dirt and gravel, and installing filter cloth. The Court went one step further and even suggested “grounds keeping” would give rise to lien rights. This because, strictly speaking, grounds keeping amounts to an alteration or repair of the land under the applicable definition of “improvement” under Ontario’s Construction Lien Act.
The case has opened the door for landscape maintenance contractors in Ontario to argue that their services should be considered lienable. The case might also be used to support similar arguments in other jurisdictions. The decision might also lead to confusion. Should the addition of top soil or mulch, as part of regular maintenance, be considered an addition, alteration, or repair to the land? Further confusion might arise if we look beyond the landscape trades. Take, for instance, the contractor who installs a pool. Clearly, the installation of the pool will give rise to rights, and filling the pool with water and chlorine, etc., before it is turned over would be part of that work. It is not so clear, however, that the pool company who returns to open the pool in the spring should have lien rights for adding water and chemicals, even though it is arguable it has altered the land. This type of work is generally viewed to be maintenance work which does not give rise to lien rights.
In Ontario, the legislature has decided to address the confusion as part of the Construction Lien Act Amendment Act, 2017 which was passed into law on December 12, 2017. When its substantial changes come into force, Ontario’s Construction Lien Act will become the “Construction Act.” One of these will be to change the definition of improvement to
include a “capital repair,” and to further exclude from the definition work performed in order to prevent the normal deterioration of the land, building, structure or works or to maintain the land, building, structure or works in a normal, functional state.
The change to the definition of improvement goes to the heart of the matter. Under the new legislation, it appears general grounds keeping, including grass cutting, weeding, spraying and snow removal, for example, will not give rise to lien rights in Ontario because it is performed to prevent the normal deterioration of the land or is done to maintain the land in a functional state.
The changes will not be implemented until they are proclaimed into force at a later date. Even then, they will be transitioned into effect over time. In the meantime, maintenance contractors in Ontario can point to the case to support a claim for maintenance lien rights.
Although maintenance contractors may prefer the result of the Ontario case, the legislative change is consistent with the industry’s general understanding of the difference between maintenance and improvement. Additionally, we must not underestimate the seriousness of the lien. A lien ties up an individual’s land and places obligations and burdens in relation to the flow of funds. From this perspective, the clarity provided by the legislation makes some sense. Still, in jurisdictions outside Ontario, maintenance contractors may want to consider the extent to which the arguments made in the Ontario case might be made to establish lien rights in relation to maintenance activities.
We should also comment, in a more general way, on the forthcoming changes to Ontario’s lien legislation. As we have written elsewhere, these will most likely have a greater impact on the construction industry in Ontario than anything else that has occurred since the Second World War. Most significant will be the prompt payment requirements and adjudication procedures set out in the new Construction Act. These are designed to help trades and contractors get paid in a timely fashion and at substantially reduced expense. Other significant changes include new lien procedures, more flexible lien limitation periods and enhanced trust obligations. Ontario’s CNLA members are certainly encouraged to put systems in place to manage, and take advantage of, the changes. While the legislation will provide better and more efficient ways to get paid, the procedures themselves contain strict and short timeframes that must be adhered to. In addition, the scheme of the changes will require trades and contractors to prepare for disputes before they happen. We will be writing and speaking on these topics extensively in the following months and Ontario’s members are encouraged to learn more through these, or other, sources. In addition, CNLA members across the country should be aware the Ontario changes are being, and will be, looked at nation-wide. Certainly, the potential for prompt payment and adjudication procedures in other jurisdictions is worthy of discussion.
Rob Kennaley and Josh Winter are lawyers with Kennaley Construction Law, a construction law firm with offices in Simcoe, Toronto and Barrie, Ont. Members of the firm speak and write regularly on construction law and contract issues. For comment, or for more information, please see the firm’s website and blog, at kennaley.ca. This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.