Construction Lien:

What is a Construction Lien?

A construction lien (also called a mechanic lien) is a legal claim filed against the title of property to ensure payment of work in progress, of services rendered or of materials furnished to enhance that property. Consider it as a security interest, just like a mortgage, which will allow the bank an interest in your house until you have paid the loan. When contractors, subcontractors, suppliers, or workers aren't paid for their contributions to a construction project, they can register a construction lien in Ontario to prevent the property from being sold or refinanced until their claim is resolved.

The Ontario Construction Lien Act creates what's called a "lien holdback" system. This means that owners and contractors must hold back a percentage of payments (currently 10%) to ensure funds remain available if lien claims arise. For example, if a general contractor hires an electrician for $50,000 of work on a commercial building, the contractor must retain $5,000 from each payment. This holdback protects subcontractors and suppliers down the payment chain.

Imagine this: Jake’s Landscaping did some hardscaping work on a residential development, and the work was worth $30,000. Before Jake was paid by the general contractor, he was made bankrupt. Jake registered a claim under the property because he duly maintained and perfected his lien rights under the Construction Lien Act. The homeowner, who had paid the general contractor already, now had a lien on his/her property. This illustrates why understanding lien rights protects everyone involved.

Recent case law demonstrates the importance of strict compliance with lien procedures. In DNR Restoration Inc. v. Trac Developments Inc., 2023 ONSC 1849 (CanLII)¹ , the Ontario Superior Court discussed the necessity to define which version of the legislation was related to the project, as it is a critical issue since the old and new Acts have different requirements. The court has pointed out that it is the duty of contractors to determine the appropriate version and adhere to its specifications when maintaining the rights to a lien, as even the contracts signed under the new Act could still be subject to the old law based on the time of the procurement process.

In another significant recent decision, Prasher Steel Ltd. v. Pre-Eng Contracting Ltd., 2024 ONSC 4772 (CanLII)² , the court dealt with the expiry of lien rights of subcontractors involved with working under various subcontracts in the same project. The Divisional Court clarified that lien rights expire based on the last date of supply to the improvement, not on a subcontract-by-subcontract basis. This means a subcontractor who returns to a project under a different subcontract may extend the preservation period for amounts owed under earlier subcontracts, a crucial protection for trades who perform work in multiple phases.

Construction Act vs Old Lien Law

Ontario's Construction Lien Act underwent substantial transformation when the Construction Act came into force on July 1, 2018 (with full implementation of most provisions by October 1, 2019). Previously operating under the Construction Lien Act, R.S.O. 1990, c. C.30, the legislation was renamed simply the Construction Act, S.O. 2017, c. 24, and introduced fundamental changes that affect how construction liens in Ontario operate today.

The modernized legislation introduced "prompt payment" provisions that revolutionized payment timelines. The payment time under the old law was generally controlled by contracts, which resulted in serious delays. The new system demands that owners pay contractors within 28 days upon receiving a proper invoice, and contractors must pay subcontractors within 7 days of receiving payment from the owner. If disputes arise, parties can access mandatory adjudication, a faster, interim dispute resolution process designed to keep cash flowing through the construction pyramid while disputes are resolved.

The adjudication process represents perhaps the most significant innovation. Instead of waiting for months or years to have a court decision, parties are now able to receive binding interim determinations in weeks. For example, if a mechanical contractor disagrees with a payment cut, he can engage in adjudication and receive a decision within 30 days (or 46 days for complex matters). Although these decisions are not final (parties can always take their disputes to court or arbitration), they offer a short-term reprieve and keep the project on its feet.

Lien preservation timelines also changed. Under the previous system, contractors had 45 days after completion or abandonment to preserve lien rights. The new Construction Lien Act of Ontario maintains this timeline but explains what constitutes "substantial completion, an important concept as it provokes a variety of time limits. Section 2 of the Construction Act now provides more detailed definitions, reducing ambiguity about when the clock starts ticking on lien rights.

The reforms also enhanced protection for residential homeowners. The structure has become more transparent regarding contractor agreements between homeowners, as the new legislation mandates the disclosure of lien and holdback rights. This makes property owners know their duties and liabilities in advance, prior to work.

Who Do We Help?

Pacific Legal serves the complete spectrum of construction industry participants navigating construction lien matters throughout Ontario. Our clients include:

General Contractors and Builders:

We assist contractors facing non-payment from property owners, helping them preserve and enforce lien rights while maintaining professional relationships. We also defend contractors against unjustified lien claims that threaten project completion or create financing obstacles.

Subcontractors and Specialty Trades:

Electrical contractors, plumbers, framers, HVAC specialists, and other trades often face the greatest payment risk. We help subcontractors understand their position in the contractual chain and take swift action to secure their lien rights under the Ontario Construction Lien Act before critical deadlines expire.

Material Suppliers:

Lumber yards, equipment rental companies, concrete suppliers, and other material providers have specific rights under construction lien legislation. We facilitate suppliers to overcome the intricacies of their lien rights, which are a bit different compared to the lien rights of service providers.

Property Owners and Developers:

Owners facing lien claims need strategic guidance to resolve disputes efficiently. We assist property owners with their responsibilities, negotiate lien discharges, and, in situations that require it, assist property owners with lien bonding to clear title in order to sell or refinance property.

Construction Lenders and Bonding Companies:

Financial institutions and surety companies require specialized advice on lien priority, holdback compliance, and bond claims. Our team provides the sophisticated analysis these stakeholders need to protect their security interests.

Legal Services Offered

Pacific Legal provides comprehensive services for all aspects of construction lien matters:

Lien Preservation and Perfection:

Time is critical in construction lien law. We act quickly to preserve your lien rights by registering claims within statutory deadlines. Missing these timelines means losing your security permanently. We prepare and register Claim for Lien documents, serve required notices, and ensure compliance with every procedural requirement under the Construction Lien Act of Ontario.

Lien Enforcement and Collection:

After preserving your lien, you have a limited time to "perfect" it by commencing legal proceedings. We file and prosecute lien actions in the Superior Court of Justice, seeking court orders for property sale to satisfy unpaid amounts. We also negotiate settlements that resolve disputes without costly litigation when possible.

Lien Defence and Discharge:

If someone has registered a lien against your property, we defend against improper or inflated claims. We analyze whether the claimant met all the stipulated requirements by the statutes, find reasons to set aside the lien, and negotiate lesser settlements. When necessary, we arrange security or bonding to discharge liens and clear property title.

Adjudication Representation:

The prompt payment adjudication process offers fast relief but requires specialized knowledge. We represent clients in adjudication proceedings, preparing submissions, examining documents, and presenting evidence to adjudicators. Whether you're seeking payment or defending against claims, our experience with this new process provides strategic advantages.

Holdback Compliance Advice:

Calculating and managing holdback obligations can be complex, especially on multi-phase projects. We give recommendations to the owners and contractors on how to take care of the holdback correctly so as to cut down the exposure of liability and make them compliant with the Construction Lien Act.

Contract Review and Risk Prevention:

The best approach to lien issues is preventing them. We review construction contracts, supply agreements, and subcontracts before you sign, identifying provisions that affect your lien rights. We draft contract language that protects your interests and complies with the Ontario Construction Lien Act requirements.

Why Choose Our Team

Pacific Legal focuses on Ontario construction law and brings dedicated attention to every client matter. Our construction lien lawyers understand that these conflicts are not only legal abstractions, but also impacts on your business activities, project schedule and financial stability. We integrate both the technical knowledge of the Ontario Construction Lien Act and practical solutions that safeguard your interests without impacting your business activities. Whether you need urgent lien preservation before a deadline expires or strategic guidance through complex adjudication, our team provides responsive, results-focused representation. We work with contractors, subcontractors, suppliers, and property owners throughout the Greater Toronto Area and across Ontario, handling matters ranging from straightforward lien registrations to complex multi-party disputes.

Contact us today to understand your construction lien rights and liabilities.