When the Construction Act (“CA”) came into effect on July 1, 2018, replacing the Construction Lien Act (“CLA”), it included provisions governing the transition from the CLA to the CA.
Section 87.3 of the CA provides that the CLA continues to apply if: (i) a contract for the improvement was entered into before July 1, 2018, or (ii) a procurement process for the improvement was commenced before July 1, 2018 by the owner of the premises.
The objective was to avoid a sudden change in the legislation applicable to contracts and projects already in place. Despite the provision appearing to be fairly straightforward, the courts have had to step in to clarify it. A recent instance of this was DNR Restoration Inc. v. Trac Development Inc., 2023 ONSC 1849.
Background
Trac, the owner, intended to build a residential condominium and entered into a construction management contract on March 23, 2018. Trac then entered into a contract with DNR on November 1, 2019 for supply and installation of formwork. DNR’s work commenced in April 2020. In 2022, issues regarding delays and non-payment arose between Trac and DNR. The parties were unsuccessful in their attempts to resolve the issues. As a result, DNR suspended its work on August 1, 2022. Subsequently, on August 17, 2022, Trac terminated DNR.
Following termination, DNR registered a lien on September 27, 2022, 42 days after the termination. Trac then brought a motion to declare the lien expired, alleging that DNR had abandoned the contract in early August 2022 and had not preserved its lien within 45 days, as is required by the CLA.
DNR argued that: (i) the CA applied to the contract, giving DNR 60 days to preserve its lien, and (ii) it had not abandoned the contract, rather Trac had terminated the contract on August 17, 2022, therefore DNR’s lien was preserved in time regardless of which act applied.
Which Act Applies?
There was no dispute that Trac had entered into a construction management project prior to July 1, 2018, suggesting that the CLA applied. However, DNR argued that the CA should apply because: (i) the construction management contract was not “a contract for the improvement” to satisfy s. 87.3, and (ii) DNR’s contract was entered into after July 1, 2018. The Court rejected both of these arguments and found that the CLA applied to the improvement and to DNR’s contract.
The Court found that the construction management contract was indeed “a contract for the improvement”. In making this finding, the Court relied on the fact that construction managers, despite only providing services, are afforded lien rights along with other parties who provide materials and services to an improvement.
DNR’s second argument was that the concept of “improvement” in section 87.3 is tied to and limited by the concept of "a contract." As a result, the transition rule should apply uniformly to each "contract," and all work that falls within the scope of each contract, but not uniformly as between contracts even though these contracts concern the same improvement. The Court rejected this argument as well. In its reasoning, the Court found that the concept of an improvement is broader and is not limited by the concept of a contract. The Court also relied on and affirmed the reasoning in Crosslinx Transit Solution Constructors v. Form & Build Supply (Toronto) Inc. (2021 ONSC 3396) that the purpose of the transition provisions of the CA was to ensure one Act applies to an improvement throughout to ensure consistent rights, obligations, and remedies for parties involved in the same improvement. There would be confusion if both statutes were allowed to govern the various contracts in the same improvement.
It is important to note that despite finding the CLA applied, the Court also found that Trac had terminated the contract on August 17, 2022, meaning that DNR’s lien was preserved in time regardless of which act applied to the contract.
Conclusion
This decision confirms that the intention of transition provisions of the CA is that only one statute should apply to the entirety of an improvement, either the CLA or the CA, not both. The deciding factor is the date when either the procurement process was commenced or the date a contract for the improvement was entered into, and whether that date is before or after July 1, 2018. The decision also confirms that a construction management contract is a contract for the improvement, just like any other contract for the supply of services and/or materials.