Insights from OnPoint Group Ltd. v. CECCE, 2023 ONSC 1341
In early 2023, the Ontario Superior Court of Justice provided guidance on the applicability of lien rights in the context of modular construction. On the facts of this matter, the court found that the construction and installation of portable classrooms constituted an "improvement" under Ontario's Construction Act, R.S.O. 1990, c. C. 30 (the "Act"), and was therefore a lienable supply of services.
Background
In July 2019, Conseil des Écoles Catholiques du Centre Est ("CECCE") hired the defendant Ty Corporation ("Ty Corp.") to construct and install 14 portable classrooms at a school site by September 2019. Ty Corp., in turn, subcontracted to OnPoint Group Ltd. ("OnPoint"), for the construction of the portables.
The parties agreed that OnPoint would construct the portables offsite, and, once the construction was complete, another of Ty Corp.'s subcontractors would deliver the partially completed portables to the school to place them on temporary foundations and, eventually, to move the portables to their final location. OnPoint would then complete the roofing, siding, stairs, landings, and window casings of the portables, at the school property.
As a result of Ty Corp failing to supply all 14 portables by September 2019, CECCE terminated the contract, and it entered into a completion contract with Multi-Service Restoration.
OnPoint, who was owed money by Ty Corp., registered a lien on title to the school property.
CECCE brought a summary judgment motion requesting that the court find that OnPoint was not entitled to a construction lien under the Act on the basis that the portables were not an "improvement" within the meaning of the Act.
Analysis
The main issue on the motion was whether the portable classrooms constituted an "improvement" under the Act. The court reaffirmed that the determination as to whether a party is entitled to a construction lien should be strictly construed. The court then underscored that the process of establishing whether the portable is an "improvement" under the Act is a fact-driven exercise.
Ultimately, the court held that the portables constituted an "improvement", and, as a result, OnPoint was entitled to a construction lien against the school property.
The following facts were key to the court's decision:
- OnPoint completed the portables on the school property;
- the final destination of the portables was known to the parties, meaning that there was a connection to the school property;
- CECCE regularly held back 10% of funds advanced to Ty Corp.; and
- the portables enhanced the value and utility of the school property.
In reaching its decision, the court considered the following four factors:
- the intentions of the parties;
- the construction of the portables;
- the installation of the portables; and
- the building features of the portables.
1. Intentions of the Parties
The court found that the intention of the parties weighed in favour of a finding that the portables were an "improvement" under the Act. Here, the contract between CECCE and Ty Corp. made no reference to the Act, and it did not expressly contemplate lien rights. However, CECCE maintained a 10% holdback on the payments to Ty Corp, which is only required where services and materials are lienable. The court found that this pointed to an inference that CECCE was operating on the basis that what OnPoint supplied was a lienable supply of services. Additionally, the court considered the fact that the parties intended for the portable classrooms to remain at the school property, as opposed to being returned to the contractor or OnPoint, or leased to a third party.
2. Construction of the Portables
The court determined that the construction of the portables favored categorizing them as "improvements". Although the court acknowledged the inherent impermanence of portables, largely because they can be relocated, the removal of a portable in this case would be a complex undertaking due to custom support anchoring. The court went on to consider additional factors, such as the fact that the portables had electricity, heating, air ventilation, and they were not on wheels.
3. Installation of the Portables
The court further found that there was a direct connection between the work performed to construct and install the portables, and enhancing the utility and value of the school. The court considered that the installation of the portables involved installing cement pillars, arranging for an electrician to connect the portables to the school's electrical system, and installing skirting around the portables. This factor weighed in favour of a determination that the portables were an improvement.
4. Building Features
The court stated that the case law on modular prefabricated structures suggests that the availability of lien rights on same, turns on the nexus between the structure and its connection to the specific lands. The court found that if a structure is manufactured with no particular destination in mind, it may be considered a chattel that can be moved around. However, lien rights will exist where the structure is manufactured for specific land or in respect of a specific construction project. In this case, the court found that there was a nexus between the portables and the school property as the portables enabled the school to increase their student population without the expense of expanding the school building.
Conclusion
With the increasing prevalence of modular construction, it is crucial for owners, lenders, developers, contractors, subcontractors and suppliers to consider whether the Act applies to their respective projects, and to understand the consequences either way. As a result of this decision, it may prove difficult for an owner to establish that the supply and installation of a modular unit does not constitute an improvement under the Act. However, each installation must be considered on its own specific facts.
The author is grateful for the contribution of Pulkit Sahi, a former Pallett Valo student-at-law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.