Construction liens are legal claims for payment for goods or services provided to improve a property. The rules governing these important legal tools are set out in legislation and require strict compliance from the party seeking to register or discharge the lien.
What are construction liens?
Construction liens are in some ways analogous to a mortgage: they are registrations on the title of a property. When you take out a mortgage, the bank or other institution loans you money in exchange for registering a mortgage on your property. The mortgage gives the bank a form of collateral on their loan should you breach the terms of the mortgage loan, by giving the bank the ability to seize and sell your property to recover any monies owed.
Construction liens function in much the same way for contractors performing work on a property to ensure that they will get paid. A person who is owed the money in a construction lien is known as the lien claimant, and the value of a given lien will be equal to the price of the services and/or materials provided.
If you are a property owner, having a construction lien registered against your property can create development and business disruptions. Outstanding liens can lead to delays in a project’s completion, and financial institutions may freeze loans or lines of credit if they discover a property is encumbered by a lien.
Who can file a lien?
Anyone who has supplied services and/or materials to a property “improvement” have a right to lien. This includes most people working on a construction project, including suppliers of equipment and architects.
The building process in Ontario is often complicated, involving many different parties ranging from owners, construction companies, contractors, and subcontractors, as well as labourers and materials suppliers. Because of these complex arrangements, disputes can arise. Construction liens help give these parties a legal claim.
What property can a lien be registered against?
Ontario’s Construction Act defines an “improvement” as
- any alteration, addition, or capital repair to the land;
- any construction, erection, or installation on the land, including the installation of industrial, mechanical, electrical, or other equipment on the land or on any building, structure, or works on the land that is essential to the normal or intended use of the land, building, structure or works, or;
- the complete or partial demolition or removal of any building, structure, or work on the land.
This is a broad definition that covers most construction activities, as well as the installation of equipment that is “essential” to the use of that property. Note that this does not cover small repairs or preventative maintenance.
Holdback obligations for property owners
Property owners who are responsible for paying for improvements or construction are required to “hold back” 10% of the amounts owed. These holdbacks act as security for any liens and must be held until all potential liens have expired or been discharged from the title.
Placing & preserving a construction lien
The right to file a lien is time-limited. Any party with a right to place a lien must do so within 60 days after the date the governing construction contract is completed or abandoned.
A lien claimant can preserve their right to a lien simply by providing the property owner with a Claim for Lien. Given the important legal rights that depend on this document, claimants should always consult with a qualified construction lawyer before serving the Claim for Lien on the property owner.
A lien is usually “preserved” by being filed against the title to the subject property. This is done by filing the proper documentary evidence with the applicable land title registry office. However, registration against the title is not required to “preserve” the claimant’s right to the lien. Simply providing the “Claim for Lien” to the property owner is sufficient.
Perfecting the lien
The next step is called perfecting the lien. A preserved lien will expire unless perfected within 90 days. However, it is important to note that the 90-day period does not run from the date it was preserved but from the date of the project’s completion.
After registering the lien, the lien claimant must also register a Certificate of Action on the property’s title. This certificate is issued by the court registrar after the claimant has started a lawsuit against the property owner.
If the claimant doesn’t start a lawsuit within the 90-day period, and a Certificate of Action is not recorded on the title, the lien may be removed.
Removing a lien – vacating vs. discharging
Removing liens is in everyone’s interest. Property owners don’t want them registered on title, and contractors want to get paid!
There is a distinction between what is known as “vacating” a lien versus “discharging” a lien. If a lien is removed from a property’s title in exchange for an alternate form of security, it has been “vacated”. Any lawsuits related to the lien continue with the new form of security taking the place of the lien.
A discharge, however, permanently extinguishes the claimant’s right to a lien. A lien may be discharged voluntarily by the lien claimant by signing a release and registering it on title, usually after the parties have come to some kind of mutual settlement agreement. Alternatively, the property owner may obtain a court order compelling the discharge of the lien.
Contact Tierney Stauffer LLP in Ottawa, Arnprior, Cornwall, Kingston, and North Bay for Trusted Advice on Construction Liens
The skilled construction lawyers at Tierney Stauffer LLP provide practical solutions to construction disputes that protect our clients’ financial interests. We represent clients at all levels of the construction pyramid in all legal forums, including litigation and alternative dispute resolution. For advice on your construction project, including issues relating to liens and construction contracts, contact us online or by phone at 1-888-799-8057.