What protection do construction liens offer?

Region: Ontario Answer # 1980

The main purpose of a lien is to help a contractor collect a debt if a property owner fails to pay for services or materials supplied. A construction lien, also known as a builder’s lien, entitles a person or business that has provided labour or materials for improvements made to land to legally claim against the property for payment of money owed. It is also known as a builder’s lien and provides the person who filed the lien with priority in payment over many other types of creditors.

Each province has laws governing how liens operate, when they apply, who can file one and important deadlines that must be met to protect or defend against a lien. Of special note to contractors and trades in Ontario are two major changes to the Construction Lien Act in 2011.

First, for contractors working in new condominium projects, there is now protection in place allowing liens to be placed on an entire development before it is registered. Condo developers and builders must now post a Notice of Intention to Register a Condominium in a construction trade newspaper five to fifteen days before sending the package description to the municipality where the condominium is located. Previously, contractors who were unpaid for work done could not place a lien on the whole project if the individual condo units became registered as separate legal parcels of real property.

Second, the Act now provides a better definition of the word “improvement.” Previously, contractors that installed equipment that might be considered portable, such as air conditioning units, could not place a lien on the property since the equipment wasn’t considered an “improvement.” The Act now expressly includes the installation of industrial, mechanical, electrical or other equipment on the land that is essential to the normal or intended use of the land.

How does a construction lien work?

A person who supplies services or materials for an improvement in land has a lien upon the premises that were improved for an amount equal to the price of the services or materials. As long as services or materials were provided, it does not matter if the services or materials were provided directly to the owner, to a contractor or to a subcontractor.

Generally speaking, under the Act, unless the lien is preserved it will expire forty-five days after the substantial performance of the contract is published or once the contract is completed or abandoned. A lien may be preserved by registering it in the proper land registry office if the lien attaches to the premises, or if the lien does not attach to the premises, by giving the owner a copy of the claim for lien.

Once a lien has been preserved, it may then be perfected. Perfection of a lien means that it can be acted upon if the contractor does not get paid.  A lien that has been preserved can be perfected in one of two ways.  First, where the lien attaches to the premises, the lien claimant (usually the contractor) registers a certificate of action in the prescribed form on the title of the premises. Second, where the lien does not attach to the premises, the lien is perfected when the lien claimant commences an action to enforce it.

Once an owner is served with a construction lien claim, they have a time limit of 20 days from the date of service in which to deliver a Statement of Defence, a cross-claim, a counterclaim or a third party claim.

If the owner fails to deliver a Statement of Defence within the time allowed, he or she may be noted in default, and will not be permitted to contest the claim, or to file a Statement of Defence unless they have the permission of the court. The defendant will be deemed to admit all allegations of fact that have been made against him or her in the claim and will not be entitled to notice of, or to participate in, any step in the action. If the owner does not file the defence in time, the action will continue and the court may give judgment against him or her.

In addition to filing a Defence, the owner may also counterclaim against the person who named him or her as defendant. The counterclaim may be based on any matter and is not limited to issues related to the construction project. The owner may also cross-claim against anyone else being sued, called a co-defendant. A cross-claim can only relate to matters pertaining to the construction project. In general, a cross-claim or counterclaim must accompany the Statement of Defence.

In addition, the defendant may bring a person who is not a party to the action, into the lawsuit as a third party. The purpose of bringing someone else into the lawsuit is so that the defendant can show how this third party is also responsible. The defendant will claim contribution or indemnity from the third party. However, a person may only be added or joined as a third party with the permission of the court. Permission from the court is obtained on a motion made with notice to the owner and all people having subsisting or perfected liens at the time of the motion.

The court will not agree to have the third party brought into the lawsuit unless the court is satisfied that the trial of the third-party claim will not (1) unduly prejudice the ability of the third party or of any lien claimant or defendant to prosecute his or her claim or conduct or his or her defence, or (2) will not unduly delay or complicate the resolution of the lien action.

The law surrounding construction liens is complicated. View the Ontario Construction Lien Act for more information, or if you require legal advice and assistance, you should consult a lawyer.




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