Ontario Construction Liens For Unpaid Building Materials And Services
The construction lien is a legal remedy for contractors and others when they are not paid for their construction services.
Provincial law establishes a framework for construction companies and related professionals like builders, labourers, contractors, subcontractors, architects, engineers, trades, materials suppliers and others to preserve their rights to receive money owed for construction services or materials used for real property improvements. Work on an improvement or materials supplied for the improvement automatically create a construction lien on the involved property.
In other words, the tradesperson or supplier receives a legal interest in the value of the property through the lien. The contractor, subcontractor or other eligible construction professional can register (preserve) and perfect their lien on the involved property to protect their rights to enforce it later should the owner not pay. This lets the lienholder start a complex process that may ultimately result in litigation to enforce the lien.
If the court process ends in a judgment for the lien claimant and the property owner still fails to pay what they owe, the contractor could get paid from the proceeds of a forced sale of the real estate, if necessary.
Construction liens may be called either builders liens or mechanics liens in other jurisdictions.
Construction Lien Basics
For both construction professionals and property or building owners facing either side of a construction-lien dispute, it is advisable to engage a litigation lawyer knowledgeable about the detailed, complicated provisions of the Ontario Construction Act. Failure to adhere to the Act’s strict procedural requirements and deadlines could cause a client to lose lien rights, waive defenses or face other negative consequences.
The main construction-lien processes in the Construction Act include:
- Registering or preserving a lien: The contractor, supplier or other construction professional has 60 days from a triggering event to attach the lien to the title of the real estate. If the lienholder does not preserve it, it will eventually expire.
- Perfecting a lien: Perfection of a lien is the act of taking the proper legal steps to enforce it within 90 days from the last day of the 60-day deadline for preserving it. To use the lien as a vehicle to collect money owed, the lien claimant in most cases files a lawsuit by issuing a statement of claim and placing a certificate of action form on the title.
- Enforcing a lien: The lien claimant has two years to set the lien action down for trial or procure an order for trial, commencing the construction lien litigation process.
Other Legal Remedies For Nonpayment Of Construction Costs
First and foremost, these issues may be preventable if at the start of a project an experienced lawyer carefully drafts or reviews the construction contract, negotiating with the other party as required to reach acceptable, clear, unambiguous terms of agreement. Clarity of contract language about agreed-upon payment amounts and due dates lessens the risk of a dispute over payment later.
Depending on the circumstances, a construction lien is likely not the only legal remedy in a nonpayment dispute. Additional or alternative approaches may be available such as a lawsuit for breach of contract or unjust enrichment. Or other remedies in the Construction Act may apply, including the Prompt Payment Provisions, interim adjudication process (outside court), use of a receiver, claim on holdbacks or a statutory trust.
On the other side, property owners may dispute the validity of a construction lien or assert that they have already paid appropriate fees and costs. Depending on the outcome of the construction lien litigation, either side may have appeal rights.
Should the parties reach a point where litigation is the next logical phase of the nonpayment dispute, a lawyer may be able to negotiate a settlement of a dispute over construction or materials nonpayment, which may allow each party to come out in a reasonable position outside of the courtroom.
With this article, we only introduce the basics of the construction lien litigation process. Because of its intricate complexity, legal consultation with an experienced lawyer is recommended.