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What You Need To Know About Construction Liens In Ontario

construction lien

What is Construction Lien Act

The concept of a lien goes back to medieval times when it initially applied to ships. In North America, Thomas Jefferson and James Madison came up with the idea of applying liens to buildings. The idea was to encourage builders and contractors to take on projects without demanding full payment in advance.

Without the lien system, builders would have a greater risk than owners. If you fail to make payments on your car or washer and dryer, a merchant can eventually repossess it. But what can a home builder do if the homeowner does not pay?

Construction liens give anyone providing labour and material a legal claim to the property

The building process in Ontario can be complicated and usually involves many different players, including owners, construction companies, contractors, subcontractors, labourers and material suppliers. Unfortunately, the complexity of the process of construction itself creates an environment where disputes quickly arise.

Construction liens give anyone providing labour and material supply a legal claim on the land and property where they are working, much like a bank does when it takes a mortgage in return for lending money. If they’re not paid for their work, lien claimants can seek court approval to sell the property to collect on the debt.

A construction lien is, in essence, a charge or security on the premises improved in favour of a party who has contributed to the enhancement of value to the lands. The lien is also a charge on the holdback funds, which are required to be maintained by owners, contractors and other parties in the construction pyramid.

Traditional Construction Pyramid

The laws are slightly different for each province as to hold back and the length of time the money is to be held. For our purposes, we will be using the definitions as set out in the Ontario Construction Lien Act.

Ontario’s Construction Lien Act establishes a system of lien and hold-back rights, and trust provisions to provide financial protection to those who supply services or materials to a construction project.

Anyone who provides material or labour to your property has the right to place a lien. For whatever reason, a lien was placed, you, as the landowner, is ultimately responsible.

Even if a contractor tells you that he/she will be accountable for any liens, when it gets to court the law makes you ultimately responsible.

Here are some scenarios:

The foundation contractor subs out the excavation of’ the foundation. The excavation contractor hires a couple of labourers to do some hand shovelling and other work. After the first day, the workers get fired for loafing on the job, and the contractor does not pay them. It’s not a problem for either the foundation or excavation contractors.

The problem is homeowner’s because the labourers can place a lien for payment against property. The same holds true for the plumber that didn’t pay for the material supplied to do the rough in. The supplier can place a lien against your property for money owed by the plumber.

If for example, you assume that the drywall finishers quoted on texturing the ceilings, and they think they didn’t, and you threaten to withhold his money until the ceilings are textured, they can place a lien against your property for non-payment.

Lien Can Shut Down Your Project

Any lien placed on the property, even though its validity must be proven in a court of law will have the power to stop your project. A lender will not advance any mortgage money after the lien has been registered because it ranks behind the claim for payment.

That is why your lawyer sub searches the property title for liens before the lender will advance a draw. If a lien has been placed, the lender will not advance any more money until the lien is satisfied.

If you cannot reach an equitable solution with the lien registrant, you can pursue the matter in court and have your project continue. Through your lawyer, you can pay the amount of the lien, plus twenty-five percent of costs, into court.

The caveat will then he removed from your land title, and the lender will again advance funds. Having paid the lien amount into court, the bank will again be in a first position so that advances can continue. You will have the opportunity to challenge the lien in court.

Placing and Enforcing a Construction Lien in Ontario

There are a number of steps you will need to take to place, preserve, and perfect a construction lien. In Ontario, a lien holder must take action to preserve their lien within 45 days of the date the contract is completed or abandoned.

How you preserve your lien depends on if the lien attaches to a piece of real estate or not. If it does, you will need to register your claim for lien with the local land registry office. If the lien does not attach to a piece of real estate, the lien may be preserved by giving a copy of the claim for lien to the property owner.

The claim for lien is a standard form document in Ontario.

Your claim for lien will need to include certain information including a description of the services or materials supplied, the amount claimed, and a description of the premises to which the lien relates.

Once you have preserved your lien, you will then need to perfect the lien within 45 days. What this means is that you will need to file a statement of claim with the court requesting a remedy, – usually sale of the property in question to satisfy the owner’’s debts to you.

Where the lien attaches to a piece of real estate, the lien is perfected” once the lienholder files a claim to enforce the lien and registers a “certificate of action with the land registry office.

The certificate of action is a standard form document in Ontario.

What are the time limits for filing a construction lien?

The time limits to register a construction lien under the Ontario Construction Lien Act are as follows:

For a Contractor:

The construction lien must be filed within 45 days after the earlier of either:

a. the publication of the Certificate of Substantial Performance; or

b. completion or abandonment of the contract.

For a Sub-Contractor or Supplier:

The construction lien must be filed within 45 days after the earlier of either:

a. the publication of the Certificate of Substantial Performance; or

b. the date on which the subcontractor or supplier last supplied services and materials or the date the subcontract is certified to be completed.

In determining the last time of supply of services, you have to look at the last date on which there was work performed upon or in respect of the improvement. You do not look at attendances to fix deficiencies in the subcontractor’s or supplier’s work.

Once the construction lien is filed, to maintain the construction lien against the property, the lien claimant must start a lawsuit in Ontario and register a Certificate of Action against the title to the property within 45 days after the date that was the last possible date to register a lien on the property.

If the lawsuit is not commenced, and the Certificate of Action is not recorded on the property within this time limit, the construction lien may be removed from title to the property, and the lien claimant will lose the benefit of the lien.

10% Holdback

The original 18th-century American implementation was a simple system designed to minimize lawsuits. Then the lawyers got a hold of it and figured out how to abuse and counter-abuse the system, and answered their own abuses with ever more complicated laws.

It’s now more complicated to preserve a lien than it is to sue directly for the money. On top of that, the holdback concept was introduced to protect homeowners against liens, which were originally meant to protect builders against owners who did not pay.

The result is that all construction companies and material suppliers in Ontario are now forced, not just encouraged, to finance at least 10% of any project, secured by a lien on your house. This is supposed to represent the “notional profit” for all of the companies involved in the renovation. Then the banks caught on, so if you’re borrowing money to renovate, they may refuse to lend you the last 10% until the work is done.

Here’s the key point to understand: since this 10% holdback is essentially a loan from your builders, not a final payment, that means that you agreed to pay it when you made the progress payments. The question that takes 45 days to resolve is who should the loan be paid out to, nothing to do with the quality of the work.

Here are some excerpts from the act that you should be familiar with.

THE ACT STATES “HOLD BACK” means the 10 percent (Ontario) of the value of the services or materials supplied under a contract or subcontract required to be withheld from payment by the homeowner for 45 days.

WHEN CONTRACT SUBSTANTIALLY PERFORMED

For the purposes of this Act, a contract is substantially completed,

a) when the improvement to be made under that contract or a substantial part thereof is ready for use or is being used for the
purposes intended; and

b) when the improvement under the contract is capable of completion or where there is a known defect, correction at a cost, not more than

  • 3 percent of the first $500,000 of the contract price.
  • 2 percent of the next $500,000 of the contract price, and
  • 1 percent of the balance of the contract price.

WHEN THE CONTRACT DEEMED COMPLETED

For the purpose of this Act, an agreement shall be considered to be completed, and services or materials shall be deemed to be last supplied to the improvement when the price of completion, correction of a known defect or last supply is not more than the
lesser of:

  • 1 percent of the contract price; and
  • $300

As you can see, the Construction Lien Act is best left for your lawyer to deal with. It is sufficient for you to know the act exists and are aware of the basic statutes that make up the Act.

If you are using a lawyer, you should not wait until the last day to contact him/her to file a lien. You should make a contact as soon as possible to allow time for the preparation of the necessary paperwork to file the construction lien.

Also, the lawyer may require time to determine the proper description of the property (which is needed to register the lien). If the property does not yet have a municipal address or the property is not in the land titles system, it can take some time to complete the manual searches at the registry office and inquiries to determine the description of the property necessary for registration.

Once the construction lien is filed, to maintain the construction lien against the property, the lien claimant must start a lawsuit in Ontario and register a Certificate of Action against the title to the property within 45 days after the date that was the last possible date to register a lien on the property. If the lawsuit is not commenced, and the Certificate of Action is not registered on the property within this time limit, the construction lien may be removed from title to the property, and the lien claimant will lose the benefit of the lien.

From the contractor’s perspective, getting paid is something that is easier to say than it is to do. You want to recover as much of what is owed to you at the least net cost, in the shortest possible time. Not the least of the frustrations encountered in reaching this goal is the delay and expense involved in the litigation process.

Even the relatively straightforward steps necessary to prosecute a lien claim from registration through to trial can be used by a skilled defence lawyer to defeat an otherwise legitimate claim. While it was once intended to be a summary remedy, it is now clear that a full range of interlocutory procedures are available in lien proceedings, such as motions for summary judgment, security for costs, third party process, examinations for discovery and other steps. By the time the court proceedings are finished, everyone involved loses except the lawyers.

The best way to avoid liens is to keep everything in writing and communicate openly with everyone involved. Always use a detailed contract, specifying material quality, quantity and labor supplied. Use change orders whenever necessary and discuss all aspects of the work with trades and suppliers before the start.

29 Comments
  1. Can a lien be placed on a residence by a contractor who isn’t licensed and no contract was signed?

  2. Is the time limit 45 days total or 45 business days?

  3. We are a limestone company in the following situation.
    We had an oral contract with the builder, who paid a small deposit. Being urged by the builder, we manufactured pieces worth $25.000. However, the builder has refused to accept the delivery because of the unspecified problems with the clients (house owners). Recently the former has severed all contact with us. We have been storing the pieces for over a month now. The fact that we don’t know anything about the owners significantly complicates the situation. We have unsuccessfully tried finding out about the owners and contacting them. We have also considered enforcing shipment on them but the premises are closed and seem to be empty.
    The builder gave us $ 10.000 deposit, the pieces we manufactured are worth $ 25.000, plus the price of storing the pieces.
    What would the best course of action be?

    • I am not a lawyer but I think that you have no course of action. The best solution for you would be to sell your stuff to someone else. What exactly did you manufacture?

    • You have a couple remedies. You can try and enforce the contract with the builder or you sue them for breach of contract. In your situation, the most likely solution is to sell your goods and keep the deposit. If the goods sell for under 15,000.00 then you can seek to recover the difference from the builder. In this case you wouldn’t have a construction lien.

  4. Can a construction lien be placed against a government building? I subcontracted work from a commercial company that had a contract with the company that won the bid to oversee the renovation of a government building.

  5. I hired a designer in Ontario to design a house, verbally it was agreed to have the project finished in 3 months, it took over one year. Can a designer put a lien on the property for the unpaid balance which is 25% of the total. Can I sue the designer for delays and costs associated with that if the deadline was agreed verbally, but written contract has no deadline. Thanks JP.

  6. You really need to consult a lawyer and explain the whole situation.

  7. I’m a supplier who was working for a contractor on a commercial property. The tenant (a convenience store), paid the contractor who has failed to pay all the suppliers. The contractor cannot be located. Can I lien against the property even if it was a commercial tenant who entered into an agreement with the contractor?

  8. we have a ccd1 2008 with a contractor for a porject in Ontario canada
    he failed to notify us in writting and give 3 days notice to correct defficiencies. and asked us to leave site then continued to modify our works without our permssions and or directions form engineers(ours our design)
    i say he breeched the contract and we should be compensated any costs and for same if any.

  9. I am a contractor hired by a custom home builder to frame 2 houses. We have a very detailed contract signed by both parties. The contract sights several milestones once completed I would be able to invoice. The last invoices the contractor failed to pay in full sighting the milestones were not a 100% completed. He is correct however due to design mistakes corrections needed to be made to fully complete certain milestones, furthermore additional work for future milestones was done but not recognized. I was then informed that the contractor felt he paid out more monies then work completed at which point we stopped all work trying to resolve the matter. After several days no progress was being made so I went thru the entire project to itemize how much work was left put hours and dollars against my findings. I came up with $10,500.00 of labour left to be paid out added 25% for a buffer which brought it to about $13,200.00. With extras total amount outstanding was $31,800.00. I emailed my findings to the contractor with no response. Several days later I emailed the contractor to try and resolve the matter at which point he informed me that he has terminated the contract due to me breaching it. I have met with him since to seek money from him and tells we are even. The contract states that if either party feels there is default by the other party they in turn shall notify the other party by registered mail a default with the contract and allow 7 days to correct the default. If this is not done then it would constitute a breach and give way to seek compensation. At no point has this happened. These are both very large renovation. I feel I am owed money and am wondering if a construction lien is possible.

    Thanks

  10. can the home owners also put a lien on the contractor’s house? If the contractor refuses to refund the deposit for unfinished work, what’s the best formal action that can be taken?

  11. We hired a company to install a new kitchen in a new home, was told it would be a 2 day install. Cupboards delivered on February 27 and it is still not completed. Last work(minimal) done was March 27, email March 30 stated they were waiting for replacements which would be in the following week. No contact or work done since then. Today they have surfaced, want to do some work next week. I have since hired someone else to complete the project. I have paid 50% of the project, are they entitled to anything else? Can they sue me?

  12. Split a fence with my neighbour who agreed to pay half, job is done, now he refuses to pay, I have paid the contractor in full, is it possible for me to place a lien on his house?

    • Please consult a lawyer. We are a custom home builder and do not know the law applicable in this case.

  13. how do I know if the contractor has paid for materials used in building my addition, and how do I know that the suppliers will not put a lien on my home?

  14. Would it protect me from liens if I get a signed paper from every subcontractor that they were paid in full (after 45 days).
    How to document subcontractor abandoning the site or not performing up to standards(OBC).
    Thank you

    • I do not know. It depends on who supplied the work. Was it general contractor? His employees can also place a lien.

  15. When a lien is placed on your property, what kind of notifications do you (the homeowner) receive? We are well past the 45 days at this point, but not sure if it’s possible that he could have filed and we were not advised. Here’s the backstory:

    We paid out our contractor for a bathroom reno in full and he disappeared/stopped corresponding March 31/17, on a job that was supposed to be completed Dec 21/16. Up until that point he was on site and/or in contact with us daily. When he stopped showing up and corresponding (mostly via text – all saved) it was 1 day after we paid out the final balance (stupid, I know) because he claimed he had a personal emergency and was in desperate need. There were still many parts of the job that were incomplete – shower drain not installed, grout not finished, caulking incomplete, room not painted, drywall not patched, etc. We hired another contractor to finish off what we could not handle ourselves with the help of handy-family-members.

    Today (July 11/17) he reached out casually saying that an electrician (who is a personal friend of his) that he brought in to do some of the work had “brought something to his attention” and wanted to speak about it in person next week… Our assumption

    Thanks so much!

  16. The homeowner does not receive any notification.

  17. Hi,
    i have placed a lien on town property which was lent out to a developer in order to put up a sales office for 7 building project which will take for the next 10 years, The town is now claiming that they will remove the lien as they have no direct contracts with any of the trades hired for putting up this sales center & its their land not the developers land.

    The Town claims that they have lent this property out to the developer because it is in alignment with the towns revitalization plan to boost the city.

    The 7 buildings are now sold out, the development of the first phase is set to start, and it will be developed on the adjacent land that the lien is on. The developer is not budging on paying any time soon. & i think the town doesn’t want to push the developer on settling the liens, infact i think the Town is on the developers side as these projects are to boost up the city.

    I have perfected the lien & have judgment against the developer, infact they never put up a defense & just ignored any correspondence from any of the lien claimants, there are about 5 liens on this land (im the 2nd) all associated to the sales office.
    What do you think my chances of collecting are, does the town have any right to remove the lien without forcing the developer to pay.
    also, once the sales office is removed the same land will be used to develop future phases of the “revitalization project”. Can they develop on land that has a lien, can a developer even be granted a building permit?

  18. We are a product manufacturer and have a subcontractor to install the product on a commercial building (commercial owner is paying us in full – we pay the subcontractor). Question, does the subcontractor put a construction lien on the commercial building?

    Thanks

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