Across Canada, the construction lien process is fraught with challenges. For property owners, contractors and trades, construction liens can lead to project delays, reputational damage, unhappy customers, or worse – unhappy creditors. Fortunately, by clearly understanding the lien lifecycle and timeline, the process is navigable.
What is a construction lien and who can claim one?
A construction lien is a security interest available to contractors, subcontractors, workers, architects, engineers, and material suppliers who have not been paid for their part in the “improvement.” A construction lien applies to any interest the property owner has in the improvement, as well as the improvement itself, the land on which the improvement is located, and to any material delivered to the improved premises. The exact quantum of the lien is typically limited to no more than the exact amount owing to the lien claimant for their services or materials.
What timeframe should I be aware of?
Construction lien rights arise as soon as work is performed on an improvement, and/or when any materials or supplies are delivered to the improved premises.
To be enforced (in most jurisdictions), a construction lien must first be registered, or preserved, which is usually done by filing a claim for lien using a standard form at the appropriate Registry Office. Timelines to register a construction lien (“construction hypothec” in Quebec) can range anywhere from 30-45 days depending on the province and type of improvement. Typically, the time limit for registering a lien claim starts from the earliest of: (1) the issuance of a certificate of completion of an improvement; (2) the actual completion of an improvement; (3) the abandonment of an improvement (4) the final supply of material or services to the improved premises; or (5) termination of the improvement.
Once the lien is preserved, it must then be perfected, which usually requires an action to enforce the lien being commenced and registered against the title of the improved premises. Most liens will expire if not perfected within a set timeframe, so it is imperative to “watch the clock”.
How do I get rid of a construction lien on my property?
There is no substitute for ensuring you are contracting with solvent, reputable builders. However, problems can still arise and it is important to understand how best to deal with them.
In addition to statutory “holdback” provisions, there are many ways to vacate or discharge a lien from title. These methods include executing a release (or application for cancellation) for the lien in the prescribed form and registering it on title, paying all or some of the claimed amount into Court, posting security for the amount in the form of a bond or letter of credit, plus a portion for costs, or posting the amount in a trust account of one of the parties’ legal counsel to be held and invested and eventually distributed in accordance with mutually agreed terms and/or undertakings. The Court can also order the discharge of a lien from title, where the parties obtain an order of the Court declaring the lien was invalid.
Finally, the best way to deal with liens is to avoid them! Follow up with your development team in the early stages of your project and communicate expectations clearly with contractors and subcontractors. Review tender documents, instructions, and contract documents to ensure there are no clauses that could impact holdback amount or time of payment. Consider setting up a meeting of all stakeholders prior to construction to understand each other’s timetables, schedules and special needs – this should help identify and deal with conflicts before they arise.