A remedy tough as nails
Construction liens offer security to anyone providing labour and materials that enhance the value of land and property. Practically speaking, registering a lien on title to a property will prevent the owner of the property from mortgaging, selling, or otherwise dealing with the property until the lien is dealt with. Ultimately, if a lien is not dealt with, the lien claimant can ask a Court to Order the sale of land and apply the proceeds of sale to pay their debt.
In this way, the construction lien is a “tough as nails” remedy; it protects suppliers by assuring them that an owner will be unable to evade payment of legitimate debts owed to those who have enhanced the value of the property. A couple of recent cases illustrate the real-world application of the construction lien remedy.
The first case involved a local flooring supplier (who we’ll call “Floor Store”) and a customer (who we’ll call “Steve”). Steve initially contacted Floor Store and expressed his eagerness to upgrade the outdated laminate flooring in his newly purchased townhome. Floor Store’s general manager, Paul, and Steve agreed on the scope of work and price to supply and install new hardwood flooring.
Unfortunately, after the installation was complete, Steve expressed his dissatisfaction with the work and Steve refused to pay the outstanding balance of his account. As a gesture of good faith and in an effort to maintain good customer relations, Floor Store offered Steve a slight discount. However, Steve was adamant that he would not pay and even aired his grievances against Floor Store by posting a negative review about the company on its public Facebook page. Given Steve’s response, Floor Store retained a lawyer to register its lien interest in Steve’s new home.
After a short trial, which included testimony from Paul, Steve, and Steve’s wife, a Judge found that Steve’s dissatisfaction with the work was unwarranted and that Steve ought to have paid Floor Store’s account. The Judge found Floor Store to have dealt honestly and in good faith and found Paul to be an expert in the supply and installation of hardwood flooring. As a result, the Judge ordered Steve to pay the entire amount of Floor Store’s claim and a substantial portion of Floor Store’s legal costs. Floor Store had no trouble collecting the total amount of its Judgment against Steve because the threat of a Court Ordered sale of Steve’s townhome was enough to compel him to pay Floor Store within a week of the Judge’s ruling.
Steve even removed from the Internet his negative review of Floor Store; but the Judge’s reasons for her decision will, of course, remain in the public domain forever.
The second case involved a local flooring supplier (who we’ll call “Tile Style”). Tile Style retained the services of a general contractor (who we’ll call “Renovators”) to remodel and upgrade Tile Style’s showroom. These premises were actually owned by Tile Style’s landlord (who we’ll call “Property Corp”). After several construction delays, a dispute arose between Tile Style and Renovators; Tile Style refused to pay Renovators and Renovators eventually registered its lien interest in the property. Pursuant to the terms of the lease agreement between Property Corp and Tile Style, Tile Style was responsible for “vacating” the lien. To “vacate” the lien, Tile Style was required to pay into Court the full amount of the lien and an additional 25 percent of the lien amount as security for Renovators legal costs. Although the lien has been “vacated,” Renovators claim is secured by the money that has been paid into Court and the case is ongoing. If Tile Style and Renovators are unable to resolve their dispute, the Court will eventually adjudicate the matter and determine to whom the money that is deposited with the Court should be paid.
In Ontario, there is a set of very strict timelines and technical rules that govern construction liens and the process for “preserving,” “perfecting” and “vacating” a lien. Some of those rules are changing in light of recent amendments to the Construction Lien Act which, as of July 1, 2018, will become known simply as the Construction Act. A comprehensive review of the myriad of changes (they include a prompt payment and adjudication regime and more rigorous accounting standards for owners, contractors, and subcontractors) is beyond the scope of this article. However, two amendments that affect the timing of lien rights attaching to private property (i.e. not municipal or government lands) are worth noting:
- A supplier seeking to preserve its right to lien a property must register a Claim for Lien with the local land registry office. The Claim for Lien includes a description of the services or materials supplied, the amount claimed as owing, and a legal description of the property to which the lien relates.As a result of the most recent legislative amendments, commencing on July 1, 2018, the deadline to register a Claim for Lien will be extended from 45 days to 60 days from the date of substantial completion of the contract or from the date the contract is abandoned or terminated.
- If, after preserving its lien rights, a supplier’s Claim for Lien remains unresolved, the supplier must “perfect” the lien by asking the Superior Court of Justice to issue a Statement of Claim and Certificate of Action, and registering a copy of the Certificate of Action with the local land registry office. Commencing on July 1, 2018, the deadline to perfect a lien will be extended from 45 to 90 days after the last date that a lien could have been preserved.
Also worth noting are those amendments which grant Judges and Masters of the Superior Court the power to refer lien claims to Deputy Judges of the Small Claims Court if they fall within the monetary jurisdiction (currently $25,000) of that Court. This will hopefully reduce the cost to small business owners seeking to enforce their lien rights; they can now retain a lawyer to handle the registration of claims for lien and certificates of action and then represent themselves in the Small Claims Court prosecution of their lien claim.
Contractors and trades who supply labour and materials to land, should have a working knowledge of their rights and obligations under the Construction Act. In light of the recent legislative amendments, this is an ideal time for those involved in the building and construction industry to consult with a lawyer who has experience handling construction lien claims.