Special care must be taken when doing work on a job where the “owner” of the job is not the owner of the property. This occurs in many industrial and commercial jobs, where the owner of the property has rented out the land in question. The company or individual who then contracts for your services (either directly or through a general contractor) only has a “leasehold” interest in the land. They are not the owner of the property.

So what? you might ask. I am doing work, improving the property, and my lien should therefore be good. Except that the law in Ontario normally will only give you a lien against the leasehold. What that means is that, at the end of the day, if you win your lawsuit and want to use your lien to collect, the only thing the courts will allow you to sell to pay the judgment in your favour is the lease itself. Sometimes, such as in highly desirable locations, a lease (especially one at a good price and for a long term) can be sold on the open market for a reasonable sum. However, the vast majority of the time you will be unable to sell the lease to anyone for any amount. In essence, your lien is worthless.

How can you avoid such a situation? There is only one way available to you under the Ontario Construction Lien Act. Section 19 of that Act requires the contractor to give the landlord written notice of the improvement to be made. It is not enough to say, as many of my clients have, “the landlord knew about it – he said I would get paid no matter what!” Please note that the giving of such a notice does not make the landlord responsible to pay you – it simply makes the property subject to the lien.

For those of you who aren’t sure about what I am talking about, a lien works like so: You sue in court and you hopefully win. Normally, once you win, you now have to run around trying to find out where the person who owes you money has their assets. Having a lien, however, gives you an easier procedure to have the property sold and the money used to pay you.

That seems simple, you might think to yourself. I only need to write the landlord a letter alerting of the improvement to be made. However, the Act goes on to say that the landlord has the right, upon receipt of your letter, to write back to you, within 15 days of getting your letter, stating that the landlord assumes no responsibility for the improvements. Once that happens, the landlord is off the hook. Assuming the leasehold has no value to anyone else, your lien is completely worthless. You can still try to collect by trying to find the debtor’s assets and then getting the sheriff involved—like anyone does in any action in Ontario.

A relatively recent case by the Divisional Court illustrates how this works. In 1276761 Ontario Ltd. v. 2748355 Canada Inc., a contractor did work in excess of $550,000 with respect to a restaurant. The work was contracted for by a tenant. The landlord, who actually owned the property, knew of the work, had approved it, and even provided certain information to the contractor. None of this made the landlord responsible for paying for the work—that was always only the responsibility of the tenant.

Prior to commencing the work, however, the contractor had delivered a letter to the landlord that stated simply “GRM Contracting Ltd. will be working on your premises doing the leasehold improvements and Buildout of the Camille’s bar & grill. I Trust you have received a copy of my liability insurance As requested.” The contractor now was attempting to argue that this letter was notice under Section 19 of the Act.

The regulations to the Construction Lien Act include a form that should be used in this situation, but it is not required to be used. If you fail to use the form, however, then you may run into an argument that you did not include sufficient information to have given the landlord proper notice.