Executive Summary: Key Legal and Evidentiary Issues

• Determination of whether the first mortgagee (HMCU) qualifies as an "owner" under the Construction Act.

• Assessment of whether the construction work was performed at the request or with the consent of HMCU.

• Examination of the temporal aspect of ownership—specifically, the relevant time for determining "owner" status.

• Evaluation of the priority of construction liens versus prior registered mortgages under the Act.

• Consideration of the sufficiency of evidence regarding HMCU’s involvement or acquiescence in the construction.

• Analysis of the limitations on liability for mortgagees even if deemed owners, specifically regarding statutory holdbacks.

Background and facts

Demasi Contracting Inc. (“the Plaintiff”) brought a claim against Ali Farahmand, Healthcare & Municipal Credit Union (HMCU), AJGL Group Inc., and Sahar Hajimohammadi (“the Defendants”) in relation to construction work performed at 6 Maryvale Crescent, Richmond Hill. The property was purchased by Ali Farahmand and his spouse in July 2022, with a $3,120,000 mortgage registered in favor of HMCU on the same date. In June 2023, Farahmand engaged Demasi Contracting Inc. to demolish and rebuild the building on the property. The Plaintiff completed the work and invoiced for services, but a debt of $760,000 remained unpaid. HMCU was aware of the ongoing work in the fall of 2023, and the Plaintiff alleged that HMCU consented to the construction and later took possession of the property, changing the locks and allegedly destroying or burying some of the Plaintiff’s equipment.

The Plaintiff registered a construction lien in April 2024 and sought a court order for the judicial sale of the property and a declaration that HMCU, as first mortgagee, was an “owner” under the Construction Act, thereby making the Plaintiff’s lien claim superior to HMCU’s mortgage interest. The Plaintiff also referenced a settlement with the second mortgagee, AJGL Group Inc., and discontinued its claim against that party.

Policy terms and clauses at issue

The central legal issue was the interpretation of the term “owner” under the Construction Act, R.S.O. 1990, c. C.30. The Act defines “owner” as a person with an interest in the premises at whose request, upon whose credit, on whose behalf, with whose consent, or for whose direct benefit an improvement is made. The Plaintiff argued that HMCU, as mortgagee and with knowledge of the construction, met this definition. The court examined whether HMCU’s awareness or acquiescence amounted to a request or consent sufficient to establish owner status, and considered the timing of HMCU’s involvement relative to the commencement of the construction work. The court also reviewed the priority rules under section 78 of the Act, which generally give priority to prior registered mortgages over construction liens unless the mortgage was taken specifically to finance the improvement.

Outcome and decision

Justice S.E. Fraser dismissed the Plaintiff’s motion, finding that HMCU did not meet the statutory definition of “owner” under the Construction Act. While HMCU held an interest in the property and was aware of the construction, there was insufficient evidence that the work was performed at HMCU’s request or for its direct benefit. The court concluded that mere acquiescence or consent does not satisfy the “at whose request” requirement. Furthermore, even if HMCU were considered an owner, its liability would be limited to the statutory holdback, and the Plaintiff’s lien would not have priority over HMCU’s prior registered mortgage. The Plaintiff’s request for a judicial sale and a declaration of priority was therefore denied. No costs were ordered for this motion, and the Plaintiff was directed to serve the decision on the Defendants. The successful party in this decision was HMCU and the other Defendants, with no monetary award or costs ordered in their favor.