Construction Liens 101
Understanding Construction Liens in Ontario
A construction lien is a crucial legal mechanism governed by Ontario's Construction Act. Amongst its many uses, it affords protection to individuals and entities supplying services or materials to properties for the purposes of improvements. This article discusses what a construction lien is, the process of a registering a construction lien, and important deadlines those who supply services and materials should keep in mind.
What is a Construction Lien?
A construction lien, as defined by Part III of the Construction Act (“Act”), provides a security interest for those who contribute labor or materials to property improvements. An “improvement” may include, but is not limited to, an alteration, addition, capital repair, demolition, or installation. By registering a construction lien, suppliers or contractors can claim the property's value (to the extent of the value of services or material supplied) and can sell the debtor’s property to satisfy the outstanding payment. A construction lien arises immediately when services or materials are first provided to the project. The amount of work completed on the property does not affect a claimant’s lien rights.
Preservation and Perfection of Liens
A construction lien has a two-step process. It must first be registered (or preserved), and then it must be perfected.
Preservation: To preserve a lien, it must be registered on title of the property or. This makes the lien publicly accessible through the Land Registry Office and notifies others of the claimant’s secured interest in the property.
The timeline for registering a construction lien is 60 days from the date of one of the following (the application of which depends on the facts of the case):
substantial performance of the contract,
completion of the contract,
abandonment of the contract, or
termination of the contract.
For subcontractors the above-mentioned timelines apply to subcontracts.
Perfection: Once a construction lien is preserved, it must be perfected by initiating an action in the Superior Court of Justice within 90 days of the last day it could have been preserved. When a construction lien attaches to the property, a certificate of action must be registered on title.
Consequences of Missing Deadlines
Failure to meet the strict deadlines for preserving and perfecting a construction lien results in its expiration. At this point, a claimant's recourse will be limited to traditional methods of debt recovery, such as commencing an action and proceeding through the traditional litigation route.
Moreover, under section 37(1) of the Act, a perfected construction lien expires immediately after the second anniversary of the commencement of the action, unless an order for trial is made or the action is set down for trial. If a construction lien expires and a court order is issued to dismiss the action, any funds paid into the court related to the construction lien (beyond the scope of this article) will be returned, and the construction lien will be vacated. This discharge of a construction lien is irrevocable, meaning it cannot be reinstated once expired and vacated.
Seeking Legal Assistance
Given the complexities and stringent deadlines associated with construction liens, it's advisable to seek professional legal assistance to navigate these matters. The construction lawyers at Gionet Fairley Wood LLP can provide expert guidance and help you understand your rights and options regarding liens, holdbacks, and contractual disputes.
By understanding and properly managing construction liens, individuals and companies can secure their right to payment and protect their financial interests in property improvement projects.
Disclaimer: the information provided in this article is general, is intended to inform, and is subject to change. Its content does not provide legal (or any other) advice and should not be construed as providing such by readers. If you require legal assistance, it is strongly recommended that you speak with a competent lawyer who can provide you with advice tailored to your specific situation.