In order for a mortgagee (typically a bank or similar secured lender) to be an “owner” under lien legislation, it must have more than knowledge of the construction work underway and consent to that work occurring. The mortgagee must be actively involved in the construction itself, requesting it be done. Otherwise, while it undoubtedly has an interest in the construction and the lands, this interest is not as “owner” for lien purposes.
The defendant and his spouse purchased a property with a mortgage of $3,120,000 registered in favour of Healthcare and Municipal Employees Credit Union (“HMCU”).
The defendant hired Demasi Contracting to carry out renovations on the property. Demasi performed substantial work, but the defendant failed to pay $760,000 in outstanding invoices.
HMCU became aware that renovations were ongoing at the property. Demasi argued that HMCU had allowed the work to continue while they were present. However, HMCU later took possession of the property and changed the locks on Demasi’s trailer. Subsequently, Demasi registered a lien against the property.
What the Court Said
The central issue before the ONSC was whether HMCU was an “owner” under the Ontario Construction Act. Demasi argued HMCU was an owner, such that Demasi’s lien would take priority over HMCU’s mortgage. Otherwise, HMCU’s mortgage would take priority due to it being registered prior to Demasi’s lien.
According to section 1 of the Act, to be qualified as an “owner,” the improvement must be made on the credit of the person with the interest, at their request, with their privity or consent, or for their direct benefit. The focus here was whether the work was done at HMCU’s request.
Demasi relied on Ravenda Homes Ltd. v. 1372708(“Ravenda Homes”), which held that an interest in personalty or in the improvement itself, without a corresponding interest in the land, cannot constitute an interest sufficient to support a lien. However, the ONSC clarified that Ravenda Homes only addressed the requirement of having an interest in the premises and did not resolve the issue of whether the work was done “at the request” of the owner.
The ONSC found no evidence that HMCU had requested renovations. While there was some indication that HMCU may have been aware of, acquiesced, or even consented to the work being done, this was not sufficient to establish that the improvements were made at their request.
The ONSC also referred to RSG Mechanical Incorporated v. 1398796 Ontario Inc., which emphasized the temporal aspect of ownership under the Act. Specifically, the relevant time to determine ownership is when the work or improvement was requested, not at a later date.
Ultimately, the ONSC concluded that mere awareness of the construction by HMCU employees, or their passive acquiescence, did not satisfy the statutory requirement that the work be done “at the request” of the owner. Further, even if HMCU was considered an “owner” under the Act, its liability would still be limited to the statutory holdback, and Demasi’s lien would not take priority over the mortgage.
What About Alberta?
The definition of “owner” under Alberta’s Prompt Payment and Construction Lien Act (the “PPCLA”) is similar to the Act. However, the rules governing priority between mortgages and liens differ between Alberta and Ontario. In Alberta, section 11(4) of the PPCLA states:
“A registered mortgage or a mortgage registered by way of a caveat has priority over a lien to the extent of the mortgage money in good faith secured or advanced in money prior to the registration of the statement of lien.”
As such, a mortgage only has priority over a lien up to the value advanced prior to lien registration. In contrast, under Ontario’s section 78(3) of the Act, priority is determined as of the time the first lien arises—usually when work begins or materials are first supplied—so that any mortgage or other registered interest existing before that point ranks ahead of liens only to the lesser of the property’s value at that time or the amounts actually advanced or secured before the construction started. In effect, Ontario’s rule protects lienholders earlier by freezing priorities when construction commences, while Alberta’s rule favours mortgage lenders by allowing them to continue advancing funds with priority until a lien is formally registered.
Takeaways
This case underscores the importance of clearly establishing who requested the work and who holds an interest in the property at the time of the improvement. Contractors seeking to secure their payment through a lien must ensure that the work is performed at the explicit or implied request of a potential owner of the property (whether registered owner or otherwise), not merely with their knowledge or passive consent.
It also reiterates that while liens are useful enforcement remedies against lands, they are subject to existing encumbrances on the lands that pre-date the lien. Practically, this can mean that even with a valid lien, lienholders’ claims rank below mortgagees. For properties with no equity, this means that a valid lien still leads to no recovery against the lands.
Liens are complex, and understanding priorities is integral to assessing potential recovery on a lien claim. It is advisable to consult a lawyer in advance. Contact Anthony Burden in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law’s Construction Group for advice.
