Where renovation is concerned, one issue that often comes up for Subcontractors is “what do I do if the owner of a construction property is selling their house?”
For this exact reason, the Construction Act, formerly known as the Construction Lien Act (the “Act”), differentiates the definitions and obligations of an “Owner” versus a “Home Buyer”.
Owners
Under Section 1 (1) of the Act, an “Owner” is defined as,
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.
Owners, unlike Home Buyers, have several obligations, including holding back of ten percent (10%) of payment for whatever price of services and materials provided to the property,[1] trust obligations pertaining to any monies received for the use of financing an improvement,[2] and further trust obligations once the interest in the property is sold.[3]
Aside from the above-noted obligations to Owners, a crucial importance in determining whether the interests of a property belong to an Owner or a Home Buyer lies with the lienability of said property. Namely, under Section 14 of the Act, a person who supplies services or materials to an improvement for an Owner has a lien upon the interest of the Owner in the premises improved for the price of those services or materials. This means that, as soon as the interest transfers from an Owner to a Home Buyer, a potential lien claimant can no longer lien the property and loses its liening rights.[4]
Home Buyers
In contrast to Owners, a Home Buyer is defined under the Act as,
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 81 of the Condominium Act, 1998, 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;[5]
In order to be considered a Home Buyer, 1) a person must not have paid more than 30% of the purchase price prior to conveyance (transfer) of title to the property and 2) the property cannot be transferred until it is ready for occupancy.[6] From a policy perspective, one of the reasons for this difference is that “a purchaser who pays less than 30% 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.”[7]
Once again, since the Home Buyer is an “end-user” who did not initially make requests for the Contractor’s supply of services and materials, a Home Buyer cannot be a person whose interest can be the subject of a claim for lien.
Practically, and given the definition of Home Buyer, this differentiation becomes more important in newly developed homes as well as condos. In these sorts of environments, at the time of construction, the Contractor and/or their holding company is usually the Owner who subsequently transfers title to the property onto the Home Buyer. As such, this differentiation between Owner and Home Buyer is most important to Subcontractors who otherwise may not be in the loop about when title is transferred.
Potential Lessons and Tips to Consider
With that in mind, as a Subcontractor, you may want to watch out for the following:
- Keep an eye out for Certificates of Substantial Performance: odds are, by the time this certificate is published, occupancy may have already been granted and the building permit may be closing up;
- In the case of condos, inquire whether a parcel of land where you provided construction has been subdivided and whether specific units have been created and/or had their ownership transferred; and
- Don’t let your unpaid Invoices rack up too high – once ownership is transferred, you may lose your lien rights!
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at dan@fridmar.com.
[1] The Act, ss. 22-23.
[2] The Act, s. 7.
[3] The Act, s. 9.
[4] Kostolnik v. Vanbots Construction Corp. (2000), 2000 CarswellOnt 4902, 101 A.C.W.S. (3d) 1200 at paras. 27-29 (Ont. Sup. Ct).
[5] Under the new Act, clause (b) will be revised sometime in the near future to substitute the Ontario New Home Warranties Plan Act with the Protection for Owners and Purchasers of New Homes Act, 2017.
[6] Di Mario v. Schuster (1994), 1994 CarswellOnt 938, 45 A.C.W.S. (3d) 1014 at para. 46 (Ont. Gen. Div.).
[7] L. D. Ducharme Systems Inc. v. Denamer Homes Inc. (1994), 1994 CarswellOnt 947, 49 A.C.W.S. (3d) 1037 at para. 23 (Ont. Gen. Div.).
