Making Lunch Out of Lien Law Duncan W

Concern 6: Statement 705 Problem: It seems inappropriate to have a lawyer who is arranging to vacate the registration of a certificate of action make a definitive statement that a lien or liens are sheltering under his client’s certificate of action, since this is not something the lawyer could possibly know for certain. It would seem more appropriate to make the statement that another lien may be sheltering behind the certificate of action. Accordingly, Statement 705 should be amended to read, “Another lien or liens may be sheltering under the Certificate of Action registered as number ……. . ”

Concern No. 7: Never (NEVER!) use the document “Registration of Court Order” when you are dealing with liens. It will not amend the register to delete the instrument that the order deals with. Instead, use the form “Application to Amend Based on Court Order”.

Concern No. 8: Certain Land Registry Offices are encouraging (insisting!) that solicitors who want to vacate liens select the document “Discharge of Lien”. Unless you mean to wipe out the lien for all purposes, forever, DO NOT DISCHARGE THE LIEN.

Construction Lien Act, s. 48 A discharge of a lien under this part is irrevocable and the discharged lien cannot be revived, but no discharge affects the right of the person whose lien was discharged to claim a lien in respect of services or materials supplied by the person subsequent to the preservation of the discharged lien. See Southridge Construction Group Inc. v. 667293 Ontario Ltd. (1993), 2 C. L. R. (2 d) 177 (Ont. Div. Ct. )

Best Practice No. 1 An informal polling of lien practitioners indicates that the practice is to scan and paste into statement 61 (a text file schedule), the entire claim for lien form, as executed by the client, including affidavit of verification.

Best Practice No. 2 At the time the client attends to execute the paper copy of the lien, have them execute an acknowledgement and direction to your firm and your E-Reg. clerk: 1. that you were authorized and directed to register the lien electronically; 2. that they have provided you with all of the information to be contained in the electronic version of the lien, which they represent to be accurate and reliable; 3. that they understand that electronic registration of the lien has the same consequences as ordinary registration.

Best Practice No. 3 Always use the document “Application to Amend Based on Court Order”.

Special Bonus Track !

Electronic Tendering

What is Electronic Tendering? Two versions exist today: (a) Internet based system that displays a description of the commodity being procured. (b) Same as (a), plus option to download and pay for tender documents.

Future of E-tendering (a) Internet based system that displays a description of the commodity being procured, plus option to download and pay for tender documents PLUS (b) Submission of tender in purely electronic format, without any paper being produced.

Two Potential Problems With Pure Electronic Tendering and an Unanswered Question First Problem: Security ! (a) threat of others accessing information sent through the internet (b) threat of others altering information sent through the internet

Two Potential Problems With Pure Electronic Tendering and an Unanswered Question Second Problem: Technology (a) software compatibility, updates, antivirus, encryption issues (b) internet and server size, reliability and speed

Unanswered Questions When has a purely electronic tender been sent and received? How will courts apply the existing rules in a construction setting? Will this change the carefully erected superstructure created by the S. C. C. in a series of cases beginning with Ron Engineering?

Electronic Commerce Act 2000, S. O. 2000, c. 17. Time of sending of electronic information or document 22. (1) Electronic information or an electronic document is sent when it enters an information system outside the sender's control or, if the sender and the addressee use the same information system, when it becomes capable of being retrieved and processed by the addressee. Contracting out (2) Subsection (1) applies unless the parties agree otherwise. Presumption, time of receipt (3) Electronic information or an electronic document is presumed to be received by the addressee, (a) if the addressee has designated or uses an information system for the purpose of receiving information or documents of the type sent, when it enters that information system and becomes capable of being retrieved and processed by the addressee; or (b) if the addressee has not designated or does not use an information system for the purpose of receiving information or documents of the type sent, when the addressee becomes aware of the information or document in the addressee's information system and it becomes capable of being retrieved and processed by the addressee.

More Unanswered Questions How does one make sure that it has been received in the same form it was sent? How does a purely electronic tender remain “sealed”? (see S. N. Bunston, “Electronic Tendering: Potential Risks and How to Avoid Them”, Toronto, Canadian Institute, 2002)

2. David Goldman’s Interesting Problem

1. 2. 3. 4. 5. 6. Strip mall Purchased at arm’s length Usual affidavits, declarations, covenants and undertakings (no lienable work, no liens, no notice of liens) Usual searches on closing: no liens Closing & mortgage registered Architect registers lien for services for previous owner

Problem: Section 78(5): “Where a mortgage affecting the owner's interest in the premises is registered after the time when the first lien arose in respect of an improvement, the liens arising from the improvement have priority over the mortgage to the extent of any deficiency in the holdbacks required to be retained by the owner under Part IV. ”

Q 1: Does the New Mortgagee Lose Priority Over Deficiency in Holdback? A: Probably not, as long as the purchaser (mortgagor) is not an “owner”. (more about this later)

Q 2: Do architects have lien rights? A: Yes!

Former s. 3(4) “Despite subsection 14(1), an architect or the holder of a certificate of practice under the Architects Act and the employees thereof do not have a lien. ” Repealed 1997, c. 23, s. 4(1)

Q 3: How can a lien exist after a closing? A: Liens “arise” and then “subsist” unless and until they expire.

Construction Lien Act, s. 15 A person's lien arises and takes effect when the person first supplies services or materials to the improvement.

Construction Lien Act, s. 31(1) Unless preserved under section 34, the liens arising from the supply of services or materials to an improvement expire as provided in this section.

Q 4: But what about s. 78(5)? A: Depends on whether purchaser is an “owner”.

Section 1 - Definitions "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

Section 1 - Definitions "home buyer" means a person who buys the interest of an owner in a premises that is a home, whether built or not at the time the agreement of purchase and sale in respect thereof is entered into, provided, (a) not more than 30 per cent of the purchase price, excluding money held in trust under section 53 of the Condominium Act, is paid prior to the conveyance, and (b) the home is not conveyed until it is ready for occupancy, evidenced in the case of a new home by the issuance of a municipal permit authorizing occupancy or the issuance under the Ontario New Home Warranties Plan Act of a certificate of completion and possession

L. D. Ducharme Systems Inc. v. Denamer Homes Inc. (1994), 17 C. L. R. (2 d) 107 (Ont. Gen. Div. ) The exclusion of "home buyer" from the definition of "owner" in s. 1(1) of the Construction Lien Act reflects the fact that a purchaser who pays less than 30 percent of the purchase price prior to closing is clearly not financing the construction of the home. In essence therefore, those who supply services or materials to the building are forced to look to the vendor for payment and cannot create lien rights in the property. A "home buyer" is not a person whose interests can be the subject of a alien. The answer to the question whether or not a "home buyer" has an interest in which a lien can be created, cannot in my view be different when the "home buyer" acquires title after a lien is registered…

L. D. Ducharme Systems Inc. v. Denamer Homes Inc. (1994), 17 C. L. R. (2 d) 107 (Ont. Gen. Div. ) The plaintiffs' submission that a "home buyer" has a responsibility to protect himself if a lien is registered before his conveyance is registered does not reflect what I see is the reality of the "home buyer' exemption to s. 14(1). That is, that it is the vendor/builder and not the "home buyer" who is financing the construction.

Q 4: then lien? If the architect had a contract with the previous owner, why bother to A: Good Question! All architect needs is s. 9 (vendor’s trust)

Section 9(1) Where the owner's interest in a premises is sold by the owner, an amount equal to, (a) the value of the consideration received by the owner as a result of the sale, less, (b) the reasonable expenses arising from the sale and the amount, if any, paid by the vendor to discharge any existing mortgage indebtedness on the premises, constitutes a trust fund for the benefit of

Section 9(2) The former owner is the trustee of the trust created by subsection (1), and shall not appropriate or convert any part of the trust property to the former owner's own use or to any use inconsistent with the trust until the contractor is paid all amounts owed to the contractor that relate to the improvement.

New & Interesting Developments

What Constitutes a Lienable Interest in Land?

Construction Lien Act, s. 1 "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

Pankka v. Butchart [1956] O. R. 837 (C. A. )

Facts I Veteran entered into agreement with the Director, The Veterans’ Land Act, to purchase a parcel of land registered in the name of the Director. Under Veterans’ Land Act, purchaser had right to: (a) balance of surplus remaining in hands of Director after sale; (b) refund of down-payment in certain circumstances; (c) notice in case of default; (d) in the event of rescission, the surplus over and above the amount owing under the contract

Did any of these interests constitute an interest in land for the purposes of the Construction Lien Act?

Court of Appeal: The provisions to which I have made reference make it plain, beyond all doubt, that the subject of a mechanics' lien created by the Act is intended to be an estate or interest in land which can be sold and vested by order of the Court in a purchaser. The lien attaches "to the land" and to the estate or interest of an owner "in the land. " A sale made under the Act is a sale of real property, and the estate and interest which may be vested in a purchaser is an estate or interest in rem. It is realty, and not personalty. There is nothing in the Act to suggest that a person can have a lien attaching to a right of a personal nature.

Bravo Cement v. University of Toronto (1991), 46 C. L. R. 207 (Ont. Div. Ct. )

Facts I University of Toronto leases land to Sunnybrook Hospital, save as to lands conveyed to third parties. Conveyances contained provision reserving the Grantor the right at any time to enter upon said lands and to there lay down, repair, maintain or remove storm or sanitary drainage installations for the benefit of all abutting lands now owned and retained by the Grantor. Description of lands in Schedule A also reserved a right of way.

Did reservations in conveyances amount to an interest in land as required by the Construction Lien Act?

Divisional Court Decision: Reversionary provisions described as “a fee simple upon condition precedent” or as “a determinable fee simple” do not amount to an interest in the land. They are mere rights which can be exercised should the circumstances permit.

Graham Mining Ltd. v. Rapid-Eau Technologies Inc. (2000), 7 C. L. R. (3 d) 279 (Ont. S. C. J. ); aff’d [2001] O. J. No. 4183 (Div. Ct. ); aff’d April 22, 2002, File No. M 28063 (C. A. )

Facts I Lien claimants had done a significant amount of surface and underground work on a small hydroelectric project in Northern Ontario, including blasting and tunneling pursuant to a revocable series of work permits and land use permits, to create a generating station on federal Crown land. The developers’ ultimate goal was to apply for and obtain a provincial Water Power Lease which would give them some security of tenure.

Facts II In the meanwhile, the land remained unpatented and all that the developers had was a realistic expectation that they would be treated fairly by the provincial government when they finished the project. Could this equitable interest support a lien?

Court of Appeal Decision (April 22, 2002): "Despite [counsel’s] argument to the contrary, an interest in the improvement by itself cannot constitute a lienable interest. At the risk of being repetitive, s. 14 of the Act is clear, it is the interest of the owner in the premises which can be liened. Premises include the land. If the owner has no interest in the land then there's no interest which can be liened by virtue of the Act".

The End