Chattels and Fixtures ~ Construction Liens

Chattels and Fixtures ~ Construction Liens

(Ontario Real Estate Source)

 By Brian Madigan LL.B.

 One way to tell if you have a chattel or a fixture is to determine whether or not it may be subject to a construction lien.

If it's a fixture, the answer is "yes; if it's a chattel, the answer is "no".

The same rules of real property apply. You require an "annexation" of the chattel to the land, then it's part of the realty.

However, to be perfectly frank, there is a "grey area", and that is that some items which are still properly chattels are lienable. That is because of the statutory definitions contained in the Construction Lien Act (Ontario).

Construction liens may be placed upon the lands in respect to an "improvement", which might include some chattels in some circumstances.

Here are the relevant provisions excerpted from the Act:

14. (1) Creation of Lien -- A person who supplies services or materials to an improvement for an owner, contractor or subcontractor, has a lien upon the interest of the owner in the premises improved from the price of those services or materials. . . .

1. (1) Definitions -- In this Act, . . .

"improvement" means,

(a) any alteration, addition or repair to, or

(b) any construction, erection or installation on,

any land, and includes the demolition or removal of any building, structure or works or part thereof, and "improved" has a corresponding meaning;

"land" includes any building, structure or works affixed to the land, or an appurtenance to any of them, but does not include the improvement; . . .

The definition is somewhat broader than just fixtures because of the purpose of the Construction Lien Act. The intention behind the Act is to protect contractors who add value to a property but never get paid. Obviously, the owner receives the improvement, but otherwise may not have to pay. The contractor paid for the improvement and was never compensated by the general contractor or the owner for his work.

So, the construction lien cases are important because in many circumstances they focus specifically upon the time of the conversion from personal property to realty. Certainly, if it's a fixture, then it's lienable. But, so too, for the "grey area" improvements. They may not quite meet the full fixture test, but they are still considered as an improvement to the property.

Consider for example a foundation for a building. The hole is dug. That is an improvement, but a hole is just a hole. It's not a chattel, and it's not a fixture, however it still is an improvement. Then come the footings. Plywood forming is set in place, and concrete is poured. The plywood is intended to be temporary. It is to be removed once the concrete sets. So, it's not a fixture. It remains as a chattel even though affixed to the realty. However, it is lienable because it's an improvement. It also falls into the "grey area" of improvements.

When we come the concrete, there are three categories:

1)    concrete, poured and set in place (this concrete is a fixture)

2)    concrete, in the wheelbarrow (this is still a chattel, but lienable as an improvement)

3)    concrete still in the ready-mix truck (this is a chattel, but if it cannot be returned which is to be determined on the facts, may be an improvement).

The transition from chattel to fixture occurs at the moment the concrete is poured into the plywood forming even though technically for a few minutes it could probably be removed and used somewhere else.

Now, that the footings are in, we come to the concrete blocks or the poured cement foundation. The poured concrete would follow the same pattern as the footings. The cement block foundation is treated differently. Once set in place, the blocks are part of the realty. They retain their character as chattels until some form of affixation takes place.

You can very well appreciate that this is all too complicated as a factual situation on a construction site, so the improvement rule will prevail, and the concrete blocks still sitting in a pile will be lienable.

Again, looking at the issue of chattels and fixtures, it is quite clear that the determination has everything to do with real property law, and nothing particularly to do with an agreement of purchase and sale between a buyer and a seller.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com