While some construction projects will continue to be governed by the former Construction Lien Act, this guide will cover the procedure for obtaining and enforcing a valid lien claim under the new Ontario Construction Act.

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*Disclaimer: this guide is for informational purposes only. It does not constitute legal advice nor create a solicitor-client relationship between the author and reader. As with all legal matters, a lawyer should be properly retained and consulted where legal advice may reasonably be considered necessary.

This blog post will cover basic lien deadlines under the Ontario Construction Act.

Table of Contents:

  1. Overview
  2. When does my lien start?
  3. How do I maintain my lien?
  4. Registration
  5. Perfection
  6. Trigger Events

Ready? Here we go!

1. Overview of The Construction Lien

The construction lien is an essential tool in every tradesperson’s toolbox. The ability to place a lien on an owner’s property and force a sale is a powerful remedy for contractors and sub-contractors to help guarantee payment. The construction lien is extraordinary, in that it provides a mechanism to secure payment even in the event of the insolvency or bankruptcy of those higher up the pyramid and despite the fact there is often no direct contractual relationship between the tradesperson and the ultimate source of funds.

A powerful tool with plenty of pitfalls

Because this remedy is so powerful, there are strict procedural rules that must be followed to maintain a construction lien, including properly registering and perfecting the lien. A failure in any stage of the process can invalidate the lien claim and leave contractors and subcontractors without a viable means of collecting payment for the materials and services they supplied. Lien procedures are further complicated by the recent coming into force of the Construction Act in 2018 which changed many of the old rules under the former Construction Lien Act and created many new rules which have yet to be interpreted by the courts. As a result, there is a great deal of confusion about the new act (even among the most seasoned lawyers) so that great caution needs to be taken to ensure lien timelines are respected and proper notice is provided when required.

2. When does my lien start?

The right to lien arises on the day you start work on a project by supplying materials or services to an improvement as defined in the Act. At this point, no steps need to be taken by the contractor or subcontractor to confirm the lien, the right arises automatically.

3. How do I maintain my lien?

Although lien rights arise automatically, they will expire unless certain steps are taken to maintain the lien. Maintaining the lien involves completing the following steps within the deadlines provided by the Act:

Step 1“preserve” the lien by registering a claim for lien on title to the premises material or services were supplied to.

Step 2“perfect” the lien by issuing a statement of claim against the party the materials or services were supplied to and obtaining a certificate of action from the courts which is also subsequently registered on title to the premises.

To maintain the lien, both steps must be performed within the timelines provided by the Act.

4. How do I preserve my lien? (60 days from the trigger event)

The first step in maintaining the lien, “preservation” is usually performed by registering the claim for lien on title to the property. The lien is registered by a lawyer in the Land Registry Office where the property is situated, using an electronic registration system only licensed users can access. The lien claim registration will include:

  • the name of the lien claimant
  • the name of the owner
  • the name of the party the services or materials where supplied to
  • a short description of the services or materials that have been supplied
  • the time of supply, and
  • a legal description of the premises

Defects in registration will not necessarily render a lien claim invalid. However, immense care should be taken to properly review all relevant documents, such as contracts and invoices, to ensure the above information is factually accurate when registering a lien so as to avoid any doubt.

The lien must be preserved within 60 days of the earliest of the triggering events occurring

5. How do I perfect my lien? (150 days from the trigger event)

After the lien has been preserved, the next step in maintaining the lien is “perfection”. The Lien is perfected when a statement of claim is issued in respect of the work or materials and a certificate of action (a court certification that litigation has been commenced in respect of the property) is registered on title to the property materials or services were supplied to.

The statement of claim for the lien must include a legal description of the property. In the case of an improvement to a leasehold premises, the party bringing the lien claim may name the landlord as an owner despite no contractual relationship existing between them and the contractor. This can be a powerful remedy as the landlord having notice of the lien, will typically assert pressure on the tenant to settle or face forfeiture (eviction).

The lien must be perfected within 150 days of the earliest of the triggering events occurring (described immediately below).

6. Triggering Events

Both Step 1Preservation and Step 2Perfection, described above, MUST be completed within their respective deadlines. The deadlines for both steps are measured from the same triggering event which starts the clock running for lien rights to expire. The lien deadlines begin to run from the earliest of one of the following trigger events occurring:

a) publication of a certificate of substantial performance
b) completion of the contract (or for a subcontract a certificate of completion being issued)
c) for contractors, termination of the prime contract with the owner
d) for subcontractors, completion, abandonment, or termination of the prime contract, and
e) the date of the last supply of material or services

These events are expanded on in greater detail below.

a) Substantial Performance

Substantial performance is defined in the Construction Act and is achieved when the project is ready for its intended use and the cost of finishing works or fixing deficiencies is no more than:

i) 3% of the first $1,000,000.00 of the contract price
ii) 2% of the next $1,000,000.00 and
iii) 1% of the remaining balance of the contract.

When substantial performance occurs, as per the definition, the architect or consultant will publish the certificate in the Daily Commercial News and the time limit to register and perfect a lien will begin to run. Contractors should be aware that because work can remain to be completed after the certificate is published, the contractor’s time to preserve a lien can potentially expire while they are still working on a project.

b) Completion of the Contract and Subcontract

Completion of the contract (meaning the contract between the owner and contractor) is also defined in the Construction Act and occurs when the lesser of 1% or $5000.00 remains to be performed under the agreement including the price of correcting any known defects. For subcontractors, the Act allows a certificate of completion to be issued in respect of the subcontract on request of the subcontractor.

c) Completion, Abandonment, or Termination of the Prime Contract

Similarly, completion of the prime contract (the main agreement between the owner and general contractor), or otherwise the abandonment or termination of the prime contract, may act as a trigger for the lien deadlines to being to run. A contract is deemed completed per the rules above. Whether a contact has been terminated can be evidenced in writing or may be implied. A contract will be found to have been abandoned when there is both a cessation of work and a refusal to complete a contract.

d) Date of Last Supply

If the lien registration period has not expired for any other reason, then the last period from which the time for registration will begin to run is the date the contractor last supplied materials or services to the project. Note: there is a persisting misconceptions about the date of last supply and many contractors will try to extend this deadline by leaving minor finishing works incomplete. The date of last supply is a legal definition in the Act and services or materials shall be deemed to be last supplied to the improvement when the price of completion or correction of a known defect is not more than the lesser of:

i) 1% of the contract price; and
ii) $5,000.00.

A Note on Liens Involving Crown and Municipal Land, etc.
It should be noted there are a variety of scenarios where the lien is not preserved through registration. These scenarios include, for instance, where the work was supplied on Crown land, or public streets and highways, and to land owned by a municipality or city. In this case, the lien is not preserved by registration but by serving a copy of the claim for lien on the proper party in accordance with the Act. Similar rules apply to perfection in such cases.

Conclusion

As the construction lien is a powerful remedy which can be lost by failing to properly maintain a lien under the Ontario Construction Act, tradespersons should always consult with a lawyer to obtain an assessment of their lien rights. As pursuing an improper lien can lead to damages against any party involved in registering that lien (including that party’s representative) many lawyers are hesitant to register last minute liens and contractors should take care to obtain an early assessment of their lien rights as soon as there is any hint of a possibility of a payment dispute arising.

If you need legal advice from an Ontario Civil Litigation Lawyer, book your free legal consultation with Supply Law today.

Book Now