A Construction Lien Primer: 8 Fundamental Questions Answered

The world of building and renovations usually involves many different players including: owners, developers, builders, architects, engineers, contractors, subcontractors, labourers and material suppliers. With so many players, the process of building or renovating a property can be stressful, chaotic and rife with conflict for both owners and service providers. In this complicated environment, a construction lien can be an invaluable tool to building professionals, suppliers and labourers to ensure that they get paid. It can also be a complicated and unexpected pitfall for owners who do not understand their obligations to their contractors and subcontractors. This article will give you some important answers to help you navigate the world of construction liens.

1. What is a construction lien?

• A lien is a claim that is registered on title to a property to secure a debt owed by the property owner to the provider of goods and services that have contributed to the construction or enhancement of that property.
• It creates an interest in the property in favour of those who supply materials or services.
• The amount of the lien is equal to the value of the debt owed for goods and services.
• The right to the lien arises as soon as one party provides services or materials towards an improvement to a property for the benefit of another party. In other words, as soon as a contractor or subcontractor completes their work, they have a right to a lien.

2. I am a Contractor/Subcontractor. How do I use the Construction Lien Act to make sure I get paid for my work?

If you are a Contractor, you must register your lien against the property upon which you have worked, or for which you have provided materials, within 45 days of the earlier of either:

a. The publication of the Certificate of Substantial Performance (which is Form 6 of the Construction Lien Act); or

b. Completion or abandonment of the contract. The Construction Lien Act defines a completed contract as one where the price of completion, correction of a known defect or last supply is not more than the lessor of 1% of the contract price + $1,000. In other words, when very little is still left to be done, the law considers the contract to be completed and the clock starts ticking with respect to your 45 days.

Unfortunately, there is no similar definition for what constitutes “abandonment” of a contract. Generally, it could be understood to mean that when one party (the owner) refuses to pay past payments or guarantee future payments and the other party (service provider) refuses to continue work. However, there is some ambiguity in this definition and this ambiguity can lead to a contractor/subcontractor missing their 45 day deadline.

If you are a Subcontractor, you must register your lien against the property upon which you have worked or for which you have provided materials within 45 days of the earlier of either:

a. The publication of the Certificate of Substantial Performance (which is Form 6 of the Construction Lien Act);

b. The date on which the person last supplies services or materials to the improvement; or

c. The date a subcontract is certified to be completed under section 33, where the services or materials were supplied under or in respect of that subcontract.

When registering your lien, you will need to provide the following information:

• Contract or subcontract price
• Amount paid
• Amount outstanding
• Last day materials or services were supplied
• Name and address of the person/company for whom the services or materials were supplied
• Name and address of property owner(s), if different from party above
• Legal description of the property

The lien must then be perfected by commencing a lawsuit within an additional 45 days following the date when the lien could have last been registered.

The Construction Lien regime can be complicated and unforgiving. The best course of action to preserve and perfect your lien is to contact a lawyer experienced with the Construction Lien Act as early as possible (i.e., immediately after the breakdown of the contractual relationship or as soon as you know you will not be paid on time).

3. My client keeps assuring me that payment is forthcoming. I don’t want to ruin my business relationship with them. Should I wait to register my lien?

Absolutely not! Remember, it is in the owner’s interest for you not to register a lien on their property. You do not want to risk missing your deadlines in an effort to appease your client.

4. I missed the 45 day deadline for perfecting my construction lien? What can I do?

The construction lien regime is very strict. Unfortunately, if you miss your deadlines, there are no second chances.

This does not mean that you are completely out of luck with respect to collecting your money. It does mean, however, that you have lost the enforcement muscle provided by the construction lien.

Your recourse is to commence a claim – Issue and file a statement of claim and let it wind its way to judgment. If the claim is not settled prior to receiving judgment, the judgment can be enforced through the traditional enforcement means: garnishment and/or writ of seizure and sale.

5. As a property owner, how do I protect myself from a construction lien?

The Construction Lien Act provides that each payer on a contract retain a holdback of 10% of the price of the services or materials until all liens that may be claimed against the holdback have expired or have otherwise been satisfied or discharged. The purpose of the holdback is to create a fund to which lien claimants may look if they are unable to recover from the person with whom they have a direct contract (i.e., in case your general contractor fails to pay one or more subcontractors).

6. As an owner, am I on the hook for any subcontractor who does not get paid?

The short answer is yes. If a subcontractor is not paid for work done on your property, you could be held responsible for paying this debt and have a lien placed on your property. This can happen even though it is really the general contractor who actually owes the money. However, if you retain the 10% holdback discussed above you are protected. The law both allows you to and expects that you will avail yourself of this protection and you should do so.

7. I am a property owner and someone has placed a lien on my property. What does this mean?

A construction lien, once proven in court, will create a security interest in favour of the service/material provider in the amount owing to them. Even before the lien is proven, the registration can stop your renovation or construction project. A lender will not advance any mortgage after a lien has been placed on your property because its mortgage (and their right to be paid) will come after the lien claimant. It is therefore important, in most cases, to move quickly to have the lien removed.

8. How do I get the lien off my property?

If you have no dispute with the lien, you can pay the service or material provider who will then provide you with a release that can be registered on title.

If you intend to dispute the underlying claim, but cannot wait for a resolution of the litigation to remove the lien, you can pay the amount claimed into court along with security for court costs which amount is the lower of 25% of the claim or $50,000. Security for costs is a reserve that is held by the court to compensate the plaintiff (lien holder) for their court costs in the event they are successful in proving their claim in court.

Conclusion

Whether you are a lien claimant or a property owner, constructions liens and the Construction Lien Act are not straight forward. When trying to navigate the world of constructions liens, it is always prudent to consult a lawyer experienced in practicing construction law. The lawyers at Corestone Law have this expertise and we are happy to serve you.