Rental Company’s Rights

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When it comes to “fixtures”, a Rental Company’s rights are severely restricted.

The Company brings along a hot water tank to the homeowner’s house. It is installed. The homeowner signs a rental contract.

The contract might have included a provision that “ownership” would not change until the homeowner made the final rental payment.

The contract may have said that the rental company could register a lien under the Personal Property Security Act.

The contract might also have provided that the rental company could have registered a mortgage/lien against the title to the property.

What works? What are their rights?

Ownership changed in law, when the installation was complete. The hot water tank became a fixture in the house. It lost its individual identity as a chattel once installation was finished. When it was carried downstairs into the basement, it still belonged to the rental company.

The common law of real property changed ownership once installation was complete. Same thing happened with the nails and the roof shingles. Wouldn’t  it be quite a surprise to find that a local hardware store arrived and wanted its nails back, claiming that the roofer had never properly paid for them? The credit card failed. The nails became fixtures upon installation. This has nothing to do with payment. The same law applies to the hot water tank.

In neither situation is the actual rental contract or the nail purchase invoice from the hardware store relevant. The common law simply takes the position that both of those contracts are irrelevant and cannot be produced in Court. This type of evidence would be inadmissible. A fixture is a fixture, and that’s it. Certainly the fact that the credit card charge for the nails was withdrawn or the rental payments were not made doesn’t matter.

The rental company still has rights, as does the hardware store. They lost their rights to claim the asset when the chattel turned into real estate. They each had the ability register a lien for the full amount under the Construction Act. They have 60 days to do this and 90 days to perfect the lien by instituting legal proceedings for recovery of the amounts owed.

If they fail to do this, then their rights as against the homeowner are lost. Their only claim is against the person who directly contracted with them. In the case of the hardware store, that would be the roofing contractor and in the case of the hot water tank, that’s still the homeowner. The opportunity to register liens against the property has been lost. Their rights are now simply “personal”.

The next protected right would be a registration under the Personal Property Security Act. That’s personal and affects chattels. Most commonly, it applies with respect to vehicles. So, anyone buying a second hand motor vehicle will check here to see if there are any liens. It doesn’t deal with real estate. That’s the Registry system.

The next opportunity would be to register a mortgage/lien against the title to the property. They might have had that right in the rental contract, and if they did in fact register such a mortgage/lien, then it would have priority over any payments to the Seller. Remember here, the Buyer is paying out the registered mortgage/lien, not buying the hot water tank, because it was already included as a fixture.

Is there an actual registration?

Frequently, “no”. Why? It would cost too much!

The hot water tank runs about $2,000.00 at most. The cost of retaining a lawyer to register a mortgage/lien on title would likely be in the range of about $300.00. That’s far too much and would increase the price to $2,300.00 making this supplier uncompetitive in the hot water tank business. Better to take the chance that they won’t be paid.

Matters might be a little different with a full rental package involving a hot water tank, furnace, air conditioner, humidifier, air purifier and related accessories. If that price gets up into the $15,000.00 range, then, you can be sure that the $300.00 registration will be justified.

If the rental company fails to register and it’s too late under the Construction Act for a lien, then, they will have to sue the Seller personally. They have no rights as against the Buyer, just the Seller. They cannot attend at the property and remove the hot water tank any more than the hardware store can attend and remove the nails. That would be trespassing. They already parted company with this unit as a chattel and once it became a fixture, they received new rights.

The Hardware store selling nails is also stuck. It had rights under the Construction Act but if they failed to exercise them, that’s their fault, not the Buyer’s.

Sometimes, rental companies have been known to attempt to intimidate Buyers. This should be reported.

The rental company’s rights would be restricted to suing personally the homeowner (Seller) for breach of contract. That means Small Claims Court. That’s the leftover remedy, not bullying the new Buyer.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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