Still waiting to see what the Court does with the new definition of “improvement” under the Construction Lien Act?

In 2010, the Ontario Legislature passed the Open for Business Act, 2010, which included several changes to the Construction Lien Act.  When I learned of the coming amendments, the one that interested me the most was an amendment to the definition of what is an “improvement” under the Construction Lien Act.

In 2007 (and under the former definition), the Ontario Court of Appeal upheld a trial judge’s ruling that the transporter and installer of a 100,000 square-foot, 500,000 ton automotive assembly line (built off-site, disassembled, transported, reassembled on-site, and fastened to the building with 2,000 to 3,000 bolts) did not have lien rights, because the installation of the assembly line did not fall within the old definition of an “improvement” as it was “portable”.  The Court of Appeal refused to interfere with the trial judge’s finding that the assembly line was portable and the appeal was dismissed.  I’m not kidding. (See Kennedy Electric Limited v. Dana Canada Corporation, 2007 ONCA 664 (CanLII) and Kennedy Electric Ltd. v. Rumble Automation Inc., 2004 CanLII 47787 (ON S.C.)).

The construction industry (and more than a lawyer or two) was surprised by the Court’s interpretation and so too, it seems, did the Ontario Legislature disapprove because the definition of “improvement” at section 1 of the Construction Lien Act was amended to now expressly include the installation of industrial, mechanical, electrical or other equipment on the land/building/structure/works where the equipment is essential to the normal or intended use of the land/building/structure/works.

This amendment came into force in October, 2010 and I’ve been keeping an eye on the reported caselaw but have yet to see a decision that gives a meaningful interpretation to the new definition and that tests the boundaries of what sort of “other equipment” might constitute an improvement and what “essential to the normal or intended use” means. At one extreme, the new definition could be interpreted to extend to, for example, dishwashers or water softeners installed in homes. At the other extreme, the Courts might be more conservative and the new definition might be fairly narrowly applied to large scale, purpose built equipment (like the equipment in the Kennedy Electric case).  It’s something to think about.  As soon as I see something on this, I’ll put something up here.

Top 10 (or 11) Suggestions for Homeowners Considering a Renovation or Residential Construction Project

For most people, long gone are the days where a house is purchased in early adulthood and is lived in, virtually unchanged, for 20, 30, even 40, years.  We are, more and more, a society and culture that encourages “upgrading” and “improvement”.  Many of us will, at some point, hire a contractor to carry out some kind of construction project – whether for a small bathroom renovation all the way up to a large six figure renovation.

There are a lot of fantastic contractors and builders out there that do excellent work and this article is, in no way, a slag on contractors generally.  Unfortunately, when trying to tell the good from the bad, one thing you can count on is that they will all – good ones and bad ones – tell you how skilled, professional, and “detail” and “quality” oriented they are.  However, another thing you can count on is that, when it’s your home and hard earned money is at risk, a two month delay, a 30% or 40% budget overrun, or an un-level floor/poor paint job/etc. (you get the idea), will test your anger management limits.  If the contractor then refuses to acknowledge the problem and stops communicating with you, you’ll quickly see those limits as little dots in your rear-view mirror.

Seasoned and experienced owners or developers undertaking large construction projects or working in new construction usually take steps to get the proper “legalities” taken care of – they negotiate contracts that are either standard form or are drafted by their lawyers, they hire consultants to oversee and review the work as it progresses, they make sure they are complying (more or less) with the Construction Lien Act, and so on. However, on smaller projects and renovations, and for less experienced homeowners, these safeguards and up-front precautions are far too often overlooked and it amazes me how little legal protection and planning many people seek even when there are tens or hundreds of thousands of dollars at stake.

Sometimes a project goes well and the homeowner gets what he or she bargained for without any conflict. These are the happy stories. However, too often, homeowners are getting into costly disputes with their contractors and either get a poor finished product or spend a small fortune in legal fees fighting for what they feel they are entitled to.  Fortunately, while construction can be a risky game for the uninformed and uninitiated, there are some things that homeowners can do to reduce the chances of things going sideways and improve their position if they do.

If you are a homeowner and are considering embarking on a renovation or construction project, the following are a few things you should think about before you sign on the so-called “dotted line”:

  1. Budget some amount of money for legal advice and assistance when you are in the early stages of planning your project.  The amount of your budget will probably depend on the overall cost and nature of the project.  You should consider this as part of the actual construction budget. If things go well (the happy story) and some of this money doesn’t get used,  great!  However, if things begin to capsize (the unhappy story), you’ll be glad to have the funds available to deal with the problem.
  2. Research the contractor(s) you are considering using.  The internet is a great resource for this (Google, chat rooms, the Better Business Bureau, etc) and your lawyer can also carry out searches to investigate whether there has been past litigation involving the contractor. Ask the contractor for two or three references for previous clients and call them (before agreeing to anything) – if people were unhappy, they’ll be eager to tell you about it.  If the contractor can’t (or won’t) give you a reference, run, don’t walk.
  3. Make sure that you have a well drafted contract in place that clearly sets out each party’s rights and obligations. There are many different project delivery methods available (fixed price, cost plus, project management, and so on), each with its own advantages and disadvantages. Regardless of which delivery method you choose, it should be clear as to who does what and when and for how much, and what the consequences will be if things that have been agreed upon do not happen.  Note: “well drafted” does not necessarily mean “long” or “complicated”.  Depending on the type and size of the project, an adequate contract might only be a page or two long.
  4. Consider having a schedule to the contract (unless it is set out right in the body of the contract) that clearly expresses exactly what is (and is not) included in the price. Too frequently, disputes arise because the homeowner thinks she is getting, for example, premium quality paint in an eggshell finish and the contractor plans on using standard builders’ grade flat paint.  If the contract is silent on this, the contractor is going to charge the homeowner more to use the paint that she thought was included.  A contract that sets these sorts of things out in detail can avoid this very, very common problem.
  5. Once you have that well drafted contract in place, follow it!  If a dispute arises, it is more difficult to earn the sympathy of the court if the other party is not the only one that has not abided by the agreed terms.  More than one lawsuit has been lost because both parties completely disregarded the terms of their contract.
  6. Get some advice on your rights and obligations under the Construction Lien Act. In many cases, knowing (and following) what the Construction Lien Act says about what you have to do (i.e. retaining a proper holdback for the appropriate amount of time and performing some due diligence searches before releasing the money) can save you from significant liability at the end of the project if workers, suppliers, or trades are not paid (whether directly by you or by your contractor).  This legislation is there, in part, to protect owners.
  7. If the size of the project warrants it, either work some terms into your contract(s) for third party reviews of the work and spend a bit of money on a consultant (i.e. an architect or engineer) to do periodic reviews to point out any deviations from the specifications, design, or the Building Code, or hire someone to do this outside the contract but for your own benefit and protection.  If a dispute arises, this third party can provide valuable evidence. If no dispute arises, the third party reviews can provide you with almost as valuable peace of mind
  8. Make sure that either you or the contractor is taking care of whatever permits are required click this site. building permits add to the cost and “red tape” of the project but for many projects they are required and, for the most part, they are there to protect you. That said, do not assume that the building permit or inspection process will act as a general quality control for the work being done.  Inspectors are generally only inspecting for general compliance with the Building Code’s minimum standards – not to ensure that everything is being done properly or in accordance with the contract. There’s a big difference.
  9. Consider whether you want a dispute resolution clause in your contract. Sometimes there is no such clause, sometimes there is a mandatory mediation or arbitration clause, and sometimes there is a clause making mediation or arbitration optional. I am generally not a fan of mandatory arbitration clauses for smaller projects primarily because of the potential cost involved, but there are times where it might be appropriate. This is something to raise and discuss with your lawyer.
  10. If you have a lawyer retained from the outset of the project, he or she will be familiar with the project and contract and, in the event that a dispute arises, will be able to jump right in without nearly as much briefing to assist in resolving things. Let your lawyer know if you sense that a problem might be on the horizon (i.e. if your contractor seems to be falling behind, the materials on site don’t match what you requested, etc). Sometimes an early letter can help keep things on the rails when they might otherwise go off (potentially saving you a lot of money if a full-scale dispute can be averted).
  11. Most construction litigation is won and lost on the “paper trail”.  Keep a very accurate and complete project file where you keep everything to do with the project (i.e. contracts, drawings, quotes, documents supporting agreed changes to the scope of work, etc). Where things are discussed orally on site or in meetings, confirm what was discussed or agreed in writing (the speed and ease of e-mail makes this a no brainer). Keeping a comprehensive project file will:
    • keep you better organized in dealing with the contractor(s) and other involved parties throughout the project (never a bad thing);
    • only take a little more time than not doing it; and
    • if a dispute arises during the course of the project and arbitration or litigation is required, possibly mean the difference between winning or losing the dispute and will invariably save you money in legal fees because your lawyer will have better evidence to work with.

While I strongly believe that the above suggestions can go a long way toward reducing problems and putting you in a better position if problems arise, they will not guarantee you 100% protection.  Even where sophisticated owners and contractors make heroic efforts to protect themselves and negotiate detailed contracts believed by everyone to be clear and  bullet-proof, long and costly litigation can still occur.

Taking the time to follow the above suggestions and, perhaps, investing couple of thousand dollars for legal advice and services at the outset of a smaller project may be a hard pill to swallow for the eternal optimist who can’t imagine that a serious dispute could arise on his or her project (“My contractor seems like a really nice guy. I trust him.”), but most clients that I’ve represented over the years, after things went wrong and where they didn’t exercise this sort of up front effort and diligence, would almost certainly say that, with the benefit of hindsight, they would have done things differently.