Navigating Construction Liens in Ontario
Disclaimer: This article on Navigating Construction Liens in Ontario is intended for the purposes of providing information only. It is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
Construction liens are on the rise in 2023. As we mentioned in an earlier article, this is to be expected as litigation will increase during economic uncertainty. This also extends to construction liens. The good news is that you can protect yourself and your business by understanding:
- what a lien is,
- how it works, and
- when to act before the situation gets out of control.
As with all business matters, protecting yourself comes down to two actions: understanding your rights and working with someone to help you both prevent and react to a lien.
What are construction liens?
A construction lien is a legal claim that one party registers against a property that is undergoing construction or renovation. It’s a form of security for payment that ensures that you pay the contractors and subcontractors for the work and the materials supplied. The lien gives the claimant the right to sell the property to recover the money owed to them.
The Ontario’s Construction Act governs construction liens. It sets out the rules and procedures for registering and enforcing liens in Ontario. The Act applies to all construction projects, whether they’re residential or commercial and whether they’re new builds or renovations.
How do construction liens work in Ontario
A construction lien is a powerful tool that can have serious consequences for both property owners and contractors. Here’s how it works:
- A contractor or subcontractor who has provided services or materials on a construction project and has not been paid can register a lien against the property.
- The claimant must give notice of the lien to the property owner and other interested parties, such as the mortgage lender.
The lien must be preserved (by registering it on title or providing a notice of lien) within a specific timeframe. That timeframe is now 60 days after the last day of work or supply of materials. It was previously 45 days, but this changed as of October 1, 2019. Once a party registers a lien, the property owner cannot sell or mortgage the property until the lien is resolved.
The claimant (the person who registered the lien) must “perfect” the lien within 150 days of the last day of work or supply of materials. Perfecting the lien means commencing legal action to enforce the lien.
Protecting yourself as a contractor
As a contractor or subcontractor, it’s important to protect yourself from non-payment.
One of the best ways to protect yourself is to make sure that all contracts are in place before starting any work. The contract should clearly define the scope of the project, payment terms, deadlines and other relevant details, such as who owns any materials provided by the contractor.
Having an enforceable contract in place will help avoid disputes down the line if there is ever an issue with payment. It’s also important that you make all payments on time according to the schedule in your contract to minimize any potential delays or issues further down the line.
It’s important that you keep careful records. If you find you’re having difficulty collecting payment from a client or are getting a run-around, you will be ready to register a lien against the property owner. You will also need to be organized when it comes to ensuring that you register within 60 days. The courts will hold to that deadline, so make sure you do everything necessary to ensure you register your lien in a timely manner.
Protecting yourself as a property owner
If someone registers a lien against your property, it is a serious issue and can have a major impact on your ability to sell or mortgage the property. Outstanding liens delay a project, or, even more seriously, financial institutions may even freeze loans or lines of credit.
The only remedy that you, as a homeowner, have against a construction lien relates to the work done. Did the contractor complete the requested work? If the contractor did not complete the work, then you may have grounds to dispute the lien.
It’s important to note that the standard is not whether or not the contractor completed the work to your standards. It is whether or not they did the work under the contract to the level of a “reasonable contractor”.
You can also include in your contract a “holdback”. This means that you can withhold a specified amount of funds from the contractor until the lien has expired or been released. It is important to consider this option as it may give you some protection against construction liens in the future. For example, if a subcontractor registers a lien for non-payment by the contractor, you can use the funds in your holdback to cover part or all of that subcontractor’s claim.
Of course, always make sure that you do your research and hire a reputable contractor before commencing any construction project.
Dealing with construction liens: Don’t wait!
As with most legal matters, the more proactive you are, the better. Whether you are disputing work done to your home or waiting for payment as a contractor, do not wait! Contact us right away to ensure we can resolve it in a timely and cost-effective manner.
Whether you are a contractor or property owner, understanding construction liens and how they work is important in order to protect yourself from potential financial losses. At Beeksma Law, we help our clients deal with construction lien matters and can provide you with the legal advice that you need. Contact us today for more information. ?