Modular construction is growing, and with that, new contractual considerations. Take for example the matter of modular “lienability” addressed recently by the Ontario Supreme Court.
The Conseil des Écoles Catholiques du Centre Est (CECCE) had entered into a contract for 14 portable classrooms to be constructed and installed at a school. On Point Corp. was subcontracted by Ty Corp. to install the portables. A supply issue arose with Ty and the contract was terminated. On Point claimed they were underpaid by Ty and registered a construction lien on the school site. The CECCE wanted the lien discharged.
The term “portable” might appear ironic in this instance since the structures were not, in fact, portable. They were anchored in place.
As partner Riccardo Del Vecchio and associate Michael Fazzari of Miller Thomson LLP write, the court found the parties intentions were for the structures to remain on CECCE’s property, and that the CECCE did not intend the portables to be leased or returned. That issue of intent is important.
As defined under Ontario’s Construction Act, the Court Justice confirmed portable classrooms were “improvements,” a term Del Vecchio and Fazzari describe as including “the construction, erection, or installation on the land, including the installation of industrial, mechanical, electrical or other equipment on the land, or any building, structure or works on the land that is essential to the normal or intended use of the land, building, structure or works.”
Ultimately, the Court ruled the portables added utility to the school. They permitted a growth in student population and therefore were deemed improvements to the school site.
One of Del Vecchio’s and Fazzari’s takeaways from the ruling is that lienability hinges on the nature of the improvement and is therefore a “fact-driven exercise” specific to each situation.
“The availability of lien rights will ultimately depend on if the structure adds value or utility to the lands, and whether the subject supply is essential to the normal or intended use of the land, building, structure or works,” they write.
Factors, including the construction and removal complexities associated with the structure and its contribution to the property’s value, will be considered.
At a recent WeirFoulds LLP webinar focussed on modular construction, partners Jeff Scorgie and Krista Chaytor were joined by Brandon Searle, director of innovation and operations of the University of New Brunswick’s Off-site Construction Research Centre.
They discussed the connection between offsite construction and the enhanced utility of the site on which it is installed, and the structure’s particular connection to the specific land. Scorgie said the matter of permanence as it relates to the supply of materials being providing to the project site will need more clarification through the courts.
However, lienability is only one issue that arises alongside the growing interest in off-site modular construction. The nature of the prefabrication contract and delivery model was also discussed at length during the WeirFoulds presentation. For example, procurement, installation responsibility and payment terms for modular units are different than with traditional construction.
Searle emphasized bringing volumetric manufacturers into project discussions early.
“They are specialized subcontractors, but they have to be treated a bit differently. That often works best with a design-build contract where the general contractor, the manufacturer, the designers and owners are all collaborating at the onset of the of the project.”
Scorgie brought up the possibility of using Integrated Project Delivery arrangements in this collaborative process.
“You bring all the stakeholders to the table early to share risk, to share profit and to collaborate on solutions with the owner. Some folks view modular as a good opportunity to use that model.”
Liability for damages occurring at the prefabricator’s facility, during transport and during installation are other issues that contracts need to take into account when dealing with modular. Add warranty coverage for individual third-party components and the final volumetric unit, plus building inspection considerations, and one begins to realise how much future contracts will evolve as modular construction grows.
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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