A Contractor’s Basic Guide To Construction Liens
If you have put in the time and effort to complete a renovation on someone’s home but have not been paid, a construction lien is a legal option to collect what you are owed. Construction law in Ontario is complex, with strict deadlines and procedures that must be followed. Even lawyers who frequently work with construction law sometimes struggle with the details, so it is important to understand how to protect yourself and your business. To help give you a general understanding let’s review the basics of construction liens.
What Are Construction Liens?
A construction lien is a legal claim that allows you to make a claim to secure payment for work or materials provided on a property. If you have done work on a home or property and have not been paid, your lawyer can register a lien against that property, provided your lien rights have not expired. This makes it harder for the home or property owner to sell or refinance the home or property without dealing with your unpaid bill.
The amount of the lien equals the value of the services or materials you provided, whether you were hired directly by the homeowner, another contractor, or a subcontractor. Once the lien is registered, it becomes public record and can impact the homeowner’s ability to access their home equity line of credit or complete other financial transactions involving the property.
Holdback Requirement
Ontario law requires each payor on a construction project, including homeowners, to retain a holdback of 10% of each price of service and materials as they are actually supplied on a renovation project until all potential lien claims have expired or been settled. This rule applies to everyone involved in the project, including contractors and subcontractors. That means if you are a contractor, you also have to hold-back 10% from any payments made to subcontractors working under you.
How to Register Construction Liens
You do not have unlimited time to preserve a lien. If you are a contractor who was hired directly by an owner of a property, you must register, or preserve, your claim within 60 days of the earlier of :
The date a Certificate of Substantial Performance is published (this is a document stating the project is mostly complete), or
The date the contract was completed, abandoned or terminated.—whichever comes first.
For a project where there is no certification or declaration of the substantial performance of the contract, your lien rights expire at the conclusion of the 60-day period next following the earlier of the completion of the contract and the date the contract is abandoned or terminated.
Note that these rules/timelines only apply for projects where no steps were started, including a procurement process, before June 30, 2018 and the old provisions of the Construction Lien Act apply. If you believe this is the case, you should contact a lawyer.
To register, you will need a lawyer to file the necessary paperwork online to preserve the lien through the Ontario land registry office. If your work was done on property owned by the Crown or a municipality, the lien is delivered to the appropriate official and not registered on title.
What Happens After Preserving a Lien?
Preserving a lien is not enough—you also need to perfect it within 90 days of the last day you were allowed to preserve it. If you do not take this next step, your lien expires, and you lose your claim.
Perfecting a lien means filing a lawsuit against the homeowner to enforce your claim. This process can get complicated, so it is best to work with a construction lawyer who understands the legal requirements. Once the lawsuit is filed, a document called a Certificate of Action must be registered on the property’s title, further securing your claim.
Homeowners Can Remove Construction Liens
Homeowners who want to remove a lien from their property have two options:
Vacating the Lien – The homeowner can provide monetary security (such as a deposit with the court) to remove the lien from the property title. The legal claim for payment still exists, but the lien no longer affects the real estate.
Discharging the Lien – This completely cancels the lien. It can only be done voluntarily by the person who filed the lien or by court order. If a lien is discharged by mistake, it cannot be reinstated, so it is crucial to be careful with the paperwork.
Key Takeaways for Contractors
If you are not paid for a renovation, you can file a construction lien to claim the money you are owed.
Liens must be registered, or preserved, within 60 days of the contract’s completion, termination or abandonment (if there is no certification or declaration of the substantial performance of the contract).
You must perfect your lien by filing a lawsuit within 90 days after the deadline to preserve it.
Homeowners are required to holdback 10% of payments until all liens have expired or been settled.
If a lien is registered, the homeowner may try to remove it by vacating or discharging it.
If You Have Not Been Paid For A Renovation, It is Time To Talk To Us About a Construction Lien. We Have The Experience You Need To Recoup The Funds You Are Owed.
Construction liens can be powerful tools to ensure you get paid, but they come with strict legal requirements. This article covers the basics but to fully understand the details, you need to work with a lawyer who has ample experience in construction law to make sure you follow the right steps and do not miss any deadlines.
At Gionet Fairley Wood LLP, we have over 20 years of experience handling construction disputes through litigation in Ontario. If you are a contractor, or sub-contractor, who needs to put a construction lien in place, contact us today to schedule a consultation and get the legal guidance you need.
***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.