Assessing real property damages:
The repair cost and the issue of betterment

Sia Moshiri

Overview
In J. Lepera Contracting Inc. v. Royal Timbers Inc., ^[1] the Divisional Court of the Ontario Superior Court of Justice addressed two major issues in the construction industry: (1) the definition of an owner under section 1 (1) of the Construction Lien Act (“CLA”) and (2) when unjust enrichment of a party has occurred.

In this case a contractor performed work for the would-be purchaser of land. Unfortunately, the purchaser breached the agreement of purchase and sale and failed to pay the contractor. As a result of the breakdown of purchase, the land reverted back to the seller, alongside the construction improvements made by the contractor. The contractor’s lien claim was dismissed as both the trial judge and Divisional Court ruled that the seller had not specifically requested the work and that the contract was between the contractor and purchaser. The decision is ultimately rather harsh on the contractor and some takeaways for contractors are discussed below.

Facts
Royal Timbers Inc. (“Royal Timbers”), the defendant real estate development corporation, owned several acres of land in Windsor, Ontario. The land was divided into 9 blocks.

In 2006, Royal Timbers reached an “agreement in principal” to sell to Sonoma Hospitality Group (“Sonoma”) one of the blocks of land (“Sonoma’s Block”).

Tender documents were issued on behalf of both Royal Timbers and Sonoma. Parties were invited to submit separate tenders for the servicing of Sonoma’s Block and the other blocks (“Royal Timber’s project”). The tender clarified that the overall work would only be awarded to one contractor but that there would be separate contracts entered into for both Sonoma’s Block and Royal Timber’s project.

On February 17, 2007, Royal Timbers and Sonoma entered into an agreement of purchase and sale. The agreement stipulated a $1.1 million price and a closing date of February 28 2007. As time wore on, the two parties agreed to extend the closing date several times.

In April 2007, J. Lepera Contracting Inc. (“Lepera”), the plaintiff, entered into separate contracts with Royal Timbers and Sonoma.

Due to the financial crisis of 2008, Sonoma never came up with the money to purchase the Sonoma Block and the agreement to purchase the land from Royal Timbers broke down.

Royal Timbers paid Lepera for the work done on its project. Sonoma, due the financial difficulties it faced, never paid Lepera. Consequently, Lepera registered a construction lien against the interests of both Sonoma and Royal Timbers for work done on Sonoma’s Block. They were awarded judgment solely against Sonoma.

Trial Decision
The trial judge dismissed Lepera’s claim against Royal Timbers after reviewing the definition of “owner” on the CLA. Section 1(1) states the owner is:

• ….. any person, including the Crown, having an interest in a premises at whose request and,

• (a) upon whose credit, or
• (b) on whose behalf, or
• (c) with whose privity or consent, or
• (d) for whose direct benefit,

• an improvement is made to the premises but does not include a home buyer [emphasis added]

The judge ruled that there was no express or implied request by Royal Timbers for Lepera to do the work. There was also no evidence that Royal Timbers provided express or implied consent for Lepera to do the work. Therefore Royal Timbers was not an “owner” under the CLA.

Lepera also argued that Royal Timbers was “unjustly enriched”. To prove unjust enrichment a party must show:

• an enrichment of the defendant;
• a corresponding deprivation of the plaintiff; and
• an absence of juristic reason for the enrichment. ^[2]

The trial judge found that Lepera’s “deprivation” was not the result of any of Royal Timber’s actions but due to Sonoma breaching the contract.

Appellate Decision
On appeal to the Divisional Court, Lepera argued that the trial judge made an error in reviewing the tender documents. Lepera contended that the trial judge wrongly found that two tenders were put down, when in reality only one tender was. This single tender meant that Royal Timbers requested the work alongside Sonoma and should be viewed as an owner. They also argued that unjust enrichment does not require the plaintiff’s deprivation be necessarily caused by the defendant.

The appeal was dismissed.

With regards to the definition of owner, Justice Patillo, writing for the unanimous court, found that the tender documents were in fact “a request for tenders.” ^[3] The documents showed that two separate tenders were required for Sonoma’s Block and Royal Timber’s project. Moreover, the evidence indicated that Lepera had no direct dealings with Royal Timbers in respect of the work in Sonoma’s Block and that Lepera’s invoice and requests for payment for Sonoma’s work were directed only to Sonoma. Thus, the court found that Royal Timbers would not fall under the category of “owner”

However, Justice Patillo believed the trial judge did make an error when stating unjust enrichment did not occur since Lepera’s deprivation was not caused by Royal Timbers. Lepera should not be required to prove this. Nevertheless, the appeal was dismissed as there was a juristic reason for the enrichment.

Essentially, for the last step of the “unjust enrichment” test, the Plaintiff must show: (1) that there is no “established juristic reason” that would stop them from being compensated for the work done; ^[4] and (2), even if the plaintiff shows no reason exists, the defendant can still rebut their claim by pointing to the “reasonable expectations of the parties and public policy considerations.” ^[5]

To Justice Patillo, the work done on Sonoma’s Block arose out of a tender agreement between Lepera and Sonoma only. Since Royal Timbers was not a party to this contract, this was a valid reason for the court to not award Lepera any damages.

Discussion & Takeaways
The decision appears to be unduly harsh on Lepera. It is not uncommon in the construction industry, for a contractor to provide services to a party who is not the registered owner of the land. The CLA, through its broad definition of the term “owner”, is supposed to provide an outlet for such contractors so they can ultimately be compensated.

Frankly, it is difficult to believe that when Lepera accessed Sonoma’s Block to work, they did not have the consent of Royal Timbers. When Lepera entered the premises each day to work did Royal Timbers know of it, but was not providing consent? Neither the trial nor the Divisional Court decision discussed this issue. Due to the court’s interpretation of the CLA, Royal Timbers received a serviced piece of land without having to pay any money. This seems antithetical to what the CLA appears to stand for.

This decision suggests that the best course of action for contractors who are to do work for a potential purchaser of land, but are not the registered owner, would be to obtain written confirmation from the owner/seller of their consent to the work done and/or that they are too requesting the work.