Construction Liens 101

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is a litigation lawyer practicing at Perley-Robertson, Hill & McDougall LLP in Ottawa, Ontario. He may be reached at 613.566.2823 or obourns@perlaw.ca.

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You will often hear aggrieved parties in various commercial / civil disputes assert, forcefully, that they want to place a lien upon the property of the party that harmed them.  As if liens are available at large and applicable to any legal dispute.  Not so fast!!

Liens are statutory remedies and construction lien legislation exists to provide some protection for the suppliers of services or materials to a construction project.  These can be people or entities that have contracted directly with the owner or those hired by a contractor or subcontractor.  Generally, those parties entitled to a lien include: contractors, subcontractors, labourers, suppliers of materials, lessors of equipment, engineers, and architects.

Where the above parties supply materials or services to an improvement on lands but do not get paid, the legislation provides them remedies in the form of construction liens, mandatory holdbacks and statutory trusts.

In Ontario the relevant legislation is the Construction Lien Act[1] which provides for the creation of a lien at s.14, which states:

  1. (1) 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 for the price of those services or materials.

The reason a supplier of services or materials wants a lien is because, once properly registered and perfected (see below) on title, the lien claimant has a charge or security on the property improved in favour.  A lien may put significant pressure on the property owner in certain circumstances give that lenders will typically not advance further funds in the face of a lien because, if they do, the newly advanced funds will have a lower priority than the lien. Ultimately, a lien claimant may seek court approval to sell the improved property to collect on the debt, which is particularly beneficial where the property owner may be insolvent but for the equity in the property.  The lien is also a charge on the holdback funds, which are required to be maintained by owners, contractors and other parties in the construction pyramid.

Alright, you’ve been convinced, a lien is desirable… how do you register and enforce one?

The first step is to preserve the lien by registering a Claim for Lien within 45 days after the earliest of either the last day of substantial work by a party on land, or, if the term of the contract continues, publication/posting of a certificate of substantial performance of a contract in publicly accessible daily commercial news.  Section 34(5) of the Construction Lien Act sets out what is to be included in the Claim for Lien, such as: the information about the parties, the property, and the amount claimed.

Next, the lien must be perfected.  A lien is perfected once: (a) a Court Action has been commenced, and (b) the Certificate of Action has been registered on title.  In accordance with section 36(2) of the Construction Lien Act, these steps must be completed within 45 days of the last day the lien could have been preserved.  This deadline is often misunderstood as 45 days from the date the lien was preserved, however, unless the lien was preserved on the last day possible, there is typically a little extra time.

Once the Action has been commenced, it proceeds in the normal course, subject to the fact that it proceeds pursuant to the Rules under the Construction Lien Act, which endeavour to provide for an expedited process than in a normal civil action under the full Rules of Civil Procedure. Additionally, s.37(1) of the Act requires that the Action be set down for trial within two years of the commencement of the Action or the lien shall expire.

Preserving, perfecting, and prosecuting a lien in a Court Action is a technical process and missteps will invalidate the lien or prevent a party from registering a lien in the first place.  If you are considering pursuing a lien against a property it is advisable that you seek legal advice as early as possible to protect your rights.

[1] Construction Lien Act, R.S.O. 1990, c. C.30 <https://www.ontario.ca/laws/statute/90c30>

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