What Are Construction Lien Bonds and How Do They Work?
Lien bonds play an important role in helping construction projects move forward when a payment dispute leads to a construction lien on a property. Disputes are a normal part of doing business, especially in the construction world where payments, timelines, and materials all need to stay on track. When a disagreement over payment happens, it can lead to a construction lien being placed on the property, which can slow everything down until the issue is resolved.
Working with an experienced construction lawyer who understands liens can help guide you through the process and offer support when facing a dispute.
Understanding Lien Bonds in Ontario
Removing a construction lien through cash payment can be costly. In many cases, the prime contractor must deposit cash with the court equal to the value of the lien plus twenty-five percent for court costs. This can create serious financial strain. Lien bonds offer an alternative that replaces the cash requirement with a bond for the same amount. This allows the project to continue while the dispute is sorted out.
In Ontario, lien bonds serve as security posted with the court to remove a lien from the property title. The lien does not disappear, instead, it is transferred from the land to the bond so that work on the property can continue without interruption.
How Lien Bonds Work
A lien claim begins when a contractor, subcontractor, or supplier registers a lien because they have not been paid for their work or materials. This lien becomes a legal claim against the property. To clear the title, the property owner or general contractor obtains a lien bond through a surety company and files it with the court on a motion under s.44 of the Construction Act. Once the court approves the bond, the lien is removed from the property title and attaches to the bond instead.
After this, the dispute continues through negotiation, mediation, or litigation. If the lien claimant proves the claim, the surety company can be compelled to pay the amount owed from the lien bond. If the claim does not succeed, the bond is released.
The Benefits of Using Lien Bonds
Lien bonds are valuable because they keep construction projects moving. Owners and general contractors do not need to tie up large amounts of cash, and property transactions such as refinancing or sales can continue. Lien claimants also benefit because the bond provides secure access to payment if they win their claim, as it is backed by a regulated financial institution.
The Challenges of Obtaining a Bond
Lien bonds are not always easy to secure. Surety companies often require an established relationship, strong financial statements, posting of security with the surety, or an existing labour and material payment bond on the project. Because of these requirements, it is important to understand your options early in the process.
Working With the Lawyers at Gionet Fairley Wood LLP When Facing a Construction Lien
If you are dealing with a construction lien or have questions about whether lien bonds are the right solution, a construction lawyer can advocate for you throughout the process. The skilled construction law team at Gionet Fairley Wood LLP assists clients across Simcoe, Grey-Bruce, Muskoka, and throughout Ontario. Our lawyers can review your situation, explain your options, and help you take the next steps toward resolving your construction dispute.
Contact us today at (705) 468-1088 or visit our website to schedule a consultation.
***The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.