Landlord Lien Exposure Under the New Construction Act

March 5, 2019 | Michael McCluskey, Trenton D. Johnson

The Construction Act (Ontario) (“the Act”) came into effect on July 1, 2018 and has introduced a number of changes regarding the process in which construction liens are addressed in Ontario. The liability of landlords and their lien exposure to tenant improvements has also been affected by the changes.

Under Ontario’s old Construction Lien Act, specifically Section 19(1), a contractor performing work for a tenant was to give written notice to the landlord who could then approve or deny the request. If the landlord approved the request, the landlord’s freehold interest in the property was subject to the lien.

The Act has repealed and replaced this notice requirement. Now, if payment for tenant improvements are accounted for under the lease or any other agreement between tenant and landlord, the landlord’s freehold interest in the property is subject to a lien in the amount of 10% of the value of the payment or funding as per the lease. It appears that “payment” will likely include any tenant inducement.

In response to this, a landlord may believe they can escape lien exposure by eliminating any tenant improvement allowances contained in the lease. While this will help manage their exposure, the Act has also included a new section confirming that landlords may be treated as traditional owners if they meet the definition of Owner as defined in the Act. Specifically, if an improvement to the premises is done at the request of the landlord, or with the consent of the landlord, and to the benefit of the landlord, a landlord will be considered an Owner and therefore face lien exposure for the full amount of the improvement.

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