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ALGONQUIN COLLEGE – Construction Project Management

LAW1000 – Law and Contracts for the Construction Industry

ASSIGNEMENT - 3

Lien Procedures

COURSE: LAW1000 – LAW AND CONTRACTS FOR THE

CONSTRUCTION INDUSTRY

SUBMITTED BY
RRRR
Student ID: 213214324
Submitted on 28-Feb-2021

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ALGONQUIN COLLEGE – Construction Project Management
LAW1000 – Law and Contracts for the Construction Industry

TABLE OF CONTENTS

1. INTRODUCTION....................................................................................................................3
2. WHAT CAN BE LIENED.......................................................................................................4
3. 2018 AMMENDMENTS TO OTARIO CONSTRUCTION LIEN ACT................................4
4. BEFORE YOU REGISTER A LIEN.......................................................................................7
5. WHEN TO LIEN......................................................................................................................8
6. REGISTER A LIEN...............................................................................................................10
7. REFERENCE.........................................................................................................................12

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1. INTRODUCTION

The Construction lien is strictly a statutory remedy provided for and regulated by the
Construction Lien Act in the province of Ontario. In Construction there is no contractual
relationship between subcontractors and the owner. This causes difficulty when a
subcontractor has not been paid. The owner will have benefited from the materials and/or
labour supplied by the subcontractor but it is not contractually liable to the subcontractor
to pay for those services and materials.
As per Subsection 14(1) of the Act “A person who supplies services or materials to an
improvement for an owner, contractor or subcontractor, has a lien upon the interest of the
owner in the premises improved for the price of those services or materials”

The construction lien is a special remedy designed to protect those parties who have
supplied materials and/or labour for the purpose of improving a particular piece of real
property. Note, ss. 14(1) refers to the price of the services and/or materials provided;
therefore, interest which may be accruing on the balance owing for the materials and/or
services cannot be secured by a construction lien. A contractual relationship with the owner
is not required for lien rights to arise. If the lien claimant does not have a direct contract
with the owner, then the claimant may only recover their pro rata share of the 10%
holdback that is required to be retained by the owner [1].

On May 31st 2017, new legislation, Bill 142, Construction Lien Amendment Act, 2017 (the
Amendment Act) was introduced at Queens Park with the goal of modernizing the
Construction Lien Act, introducing a mandatory prompt payment regime, and implementing
a mandatory fast-track dispute resolution process. The Construction Lien Act regulates how
payments are made, to help ensure that workers who have provided services or materials
during a construction project are paid for their work.

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LAW1000 – Law and Contracts for the Construction Industry

In this assignment we will analyse what are the key changes done in 2018 amendments and
prepare a procedure that can be used as a reference guide for ensuring compliance with the
Act.
2. WHAT CAN BE LIENED

The Act makes reference to an “improvement” to set out what type of property and what
type of work can be liened. An improvement includes the alteration of and/or the addition
to the property. This is a broad definition and covers most construction activity.

An improvement also includes the construction and installation of industrial, mechanical, or

electrical equipment, when that equipment is essential to the regular use of that property.
Affixed machinery in a plant such as an automotive assembly plant would fall within the
definition of an improvement.

It is also possible to lien for work done for a capital repair. This type of work is for work
done to extend the economic life of a building or structure. It has to be noted that this does
not include just any type of repair, and does not include preventative maintenance.
3. 2018 AMMENDMENTS TO OTARIO CONSTRUCTION LIEN ACT

On July 1, 2018, the first round of amendments to the Ontario Construction Lien Act –
including its new name, the Construction Act – came into force. The amendments to the Act
represent the materialization of the Province’s intention to modernize provincial
construction laws to improve efficiency and competitiveness for construction businesses.
Below are some of the key changes and highlights:
3.1. Prompt payment regime (s. 7 of the amendment act):

a) The amendment introduced a strict, prompt payment regime in Ontario, applicable to

both private and public sector projects.
b) The owner will have 28 days to pay a contractor after delivery of a proper invoice.
c) A contractor will have 7 days to pay a sub-contractor, but only after being paid.

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LAW1000 – Law and Contracts for the Construction Industry

d) The prompt payment provisions will apply to payments made under contracts entered
into on or after the date the amendments come into force (s. 6.8).
3.2. Targeted Interim Binding Dispute Resolution (s. 8 of the Amendment Act)

a) This dispute resolution method become mandatory on all construction projects.

b) Parties to a construction contract are entitled to refer disputes to adjudication (based
on the UK model) that flow from a proper invoice under a contract, including claims for
valuation of work, services and materials and other monetary claims made in
accordance with the contract, as well as set-offs, deductions and delay claims.
c) Parties are free to draft their own provisions so long as the provisions are consistent
with the Act.
d) The party with the issue needs to deliver a notice of adjudication to the party with
whom they have a contract. The receiving party have two days to determine if it agrees
with the proposed adjudicator. Five days later, there will be a referral notice, a notice
of adjudication and back-up documents from the claimant to be provided to the
adjudicator. Ideally, within 30 days, the adjudicator delivers a written decision.
e) If a decision to pay is not obeyed, the party expected the payment would be entitled to
suspend work under the contract.
f) In the experience of the UK, only a small number of cases go from the adjudication to
litigation or arbitration.
g) The adjudication procedures will apply to contracts entered into on or after the day
the amendments come into force (s. 13.6)
3.3. Greater Lien Rights (ss. 12-16 and 27-31 of the Amendment Act)

a) The timeline for contractors and subcontractors to register a lien is extended from 45
days to 60 days.
b) The subsequent timeline to perfect a lien by commencing an action is also extended
from 45 days to 90 days.

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c) The definition of “improvements” is expanded to include capital repairs that extend

the normal economic life of a structure. This means that lien rights are also expanded.
d) Frivolous, vexatious or abusive liens will be a discharged in whole or in part.
e) Minor errors to liens will not automatically mean a lien invalidation.
f) Forms are standardized, including written Notices of Lien.
g) Lien claims under $25,000 to be referred to the Small Claims Court.
3.4. Holdbacks (ss. 17-25 of the of the Amendment Act)

a) Security can be offered in lieu of cash holdbacks.

b) The release of holdback will be mandatory: the owner will be required to publish a
notice of non-payment/set-off to interdict the obligation to pay holdback where the
owner in good faith intends to assert set-off.
c) The holdback funds will have to be paid as soon as the deadline to register liens has
passed.
d) Release of holdbacks will be permitted on a phased basis for longer or phased projects.
3.5. Updated Definitions (ss. 1-2 of the Amendment Act)

a) Substantial performance financial threshold tiers will increase from $500,000 to

$1,000,000
b) Total completion will be increased to lesser of 1% or $5,000
c) The Amendment Act introduces many new, updated or replacement definitions to take
into account modern project structures, including “owner”, “contractor”,
“subcontractor”, “broader public sector organization”, “improvement”, “municipality”,
“capital repair”, and “price” among others.
3.6. New Trust Fund rules (s. 8 of the Amendment Act)

The Act did not implement a requirement for project-specific bank accounts, but there are
some new rules relating to the deposit, administration, recording and traceability of project
trust funds

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4. BEFORE YOU REGISTER A LIEN

Before we proceed to learn how to lien, let us have some more understanding on the
applicability of the act.
Lien for a Rental property: Lien can be registered on a rented property. However, whether
the lien will affect the rights of the landlord or the tenant will depend. If your work is solely
within the tenant’s space, then we cannot tie landlord to the work. However, if the work is
connected to both the tenant’s space and the landlord’s building or land, then we may
have a right to claim from the landlord.
Federal Government property: Federal government property cannot have liens enforced
against them. The Federal Government takes the position that the Act has no application at
all to its property since the Act is Provincial legislation.
Provincial and Municipal Government property: Provincial and Municipal government
property is subject to the Act. If the contract is in excess of $500,000, then a labour and
material payment bond, in an amount of at least 50% of the contract value, is required.
Similarly, a performance bond is also required in an amount of at least 50% of the contract
value.
Work that we can Lien: Supply of services can include engineering and architectural
services or the rental of equipment and has been extended to include the supply of
security services to a construction site or the services of estimating and job supervision.
Value of the Lien: The Act gives you the ability to lien for the “price” of services and
materials that you provided to the project. “Price” is a defined term and means:
 the amount agreed between the parties, or if there is no agreement on the amount,
then the market value of the work; AND
 any direct costs incurred as a result of a delay
However, we are NOT entitled to lien for interest on the amount we are owed, nor can we
lien for any indirect costs associated with our claim. We should also make sure we do not
exaggerate the claim. The Act contains specific provisions about an “exaggerated” lien and

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that we could be liable for the costs that someone incurs as a result of the exaggerated
lien.
5. WHEN TO LIEN

Once a contractor or subcontractor has supplied materials or services to site, it have a lien.
It can register a lien even though the money is not yet due and owing and if it has yet to
render an invoice. However, care should be take not to impact the professional
relationships between the organizations. Hence best is not to register a lien even before
rendering an invoice.
Before we start to count days, we first have to determine whether we are a “contractor” or
a “subcontractor”. A “contractor” has a contract directly with the owner. A “subcontractor”
is anyone with a contract with the contractor, or with another subcontractor (i.e. a
supplier).
5.1. Lien of a contractor

A contractor must register its lien within 60 days of the earlier of:
 the date upon which the certificate of substantial performance is published (if there is
one); and
 The date that the contract was completed, abandoned, or terminated.
However, if the Prime Contract of the Project was entered into, the procurement process
for the Project was commenced, or the lease was entered into, prior to July 1, 2018,1 the
old Construction Lien Act continues to apply. In that case, we only have 45 days in which to
preserve your lien.
5.2. Lien of a subcontractor

A subcontractor, or any other person, must register its lien within 60 days of the earlier of:
 the date upon which the certificate of substantial performance is published (if there is
one);
 the date that they last supply services or materials to the project;

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 the date that the contract was completed, abandoned, or terminated; and
 the date that the subcontract is certified to be complete (this rarely occurs).
However, if the Prime Contract of the Project was entered into, the procurement process
for the Project was commenced, or the lease was entered into, prior to July 1, 2018,2 the
old Construction Lien Act continues to apply. In that case, we only have 45 days in which to
preserve your lien.
Note: When counting the relevant days for the purposes of preserving a claim for a lien, we must count
weekends and holidays. However, if our 60th day (or 45th day, as the case may be) lands on a weekend or
holiday, then we are permitted to preserve our lien on the following business day.

5.3. Certificate of Substantial Performance

Not all construction projects will carry with them a requirement for a certificate of
substantial performance (“CSP”). The CSP serves as notice that the project is almost
complete, and once published acts to cut off a significant portion of lien rights.
A CSP can only validly be published when two criteria are met:
1. When the project, or a majority of the project, is ready for the use for which it is
intended (i.e. a residential property is ready to be occupied); and
2. When the project can be completed for (or the value of a known defect is) not more
than:
a) 3% of the first $1,000,000 of the contract price;
b) 2% of the next $1,000,000 of the contract price; and
c) 1% of the balance of the contract price
5.4. Completion of a contract or subcontract

The completion of a contract will depend on the facts of each case. However, a contract is
“deemed” to be complete when the price of completion, the correction of a known defect,
or the last supply is of a value of less than the lower of:
1. 1% of the contract price; and
2. $5,000.

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6. REGISTER A LIEN

Following sections will detail out step by step procedure for registering a lien:
6.1. Notice of termination

In the event that a contract or a subcontract is terminated, a notice of termination in the

prescribed form (Form 8) is required to be published in a construction trade newspaper.
6.2. Written notice of lien

Before actually registering a lien, we may want to consider prior to send a written notice of
lien. Typically, this can be used in the event that our lien rights do not expire for a period
of time that will permit the written notice to have time to be effective.
A written notice of a lien is completed by personally serving the prescribed form (Form 1)
on the person(s) above us in the construction pyramid. Upon receipt of a written notice of
lien, the payer, i.e. the person above us in the construction pyramid, must retain the full
amount in dispute.
The written notice of a lien is only a temporary measure. It does not stop our clock from
running on the time we have to register our lien. Furthermore, if we are still unpaid after
the written notice of lien is sent, we still need to register your lien on title or we will lose
our lien rights.
6.3. Register a lien

The act of placing a lien on title is known as “preserving” our lien. It is the registration of
our lien on title. There is a specific form (Form 12) that has to be completed, with
information such as:
1. our proper legal name;
2. who we contracted with;
3. the name of the owner;
4. the time in which we supplied to the project;

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5. our total contract value;

6. how much we are owed; and
7. what type of work we supplied.
This can be done by visiting the local Land Registry Office in the county of the project.
Lawyers have access to a program called Teraview which allows them to register your lien
electronically.
6.4. Perfecting a lien

Once the lien is registered, we will have to “perfect” the lien by starting a court action. This
cannot be done in Small Claims Court even if the value of the lien is less than the $25,000
limit. The claim is issued in the Superior Court, and it has to be done within 90 days of the
last day in which we have registered our lien.
After the statement of claim is issued, a certificate of action also has to be issued, and then
registered on title of the property.
If we fail to commence the court action, or fail to register the certificate of action, our lien
will expire and it cannot be enforced. Once the court action is commenced, it proceeds
through the litigation process similarly to any other lawsuit.
6.5. Maintaining the lien

In order to maintain our lien, we will have to take steps to advance the court action. Within
two years of starting the claim, we will have to ensure that it is set down for trial or that
there has been an Order directing a trial. If this is not done, our lien will expire.
6.6. Mistakes in the Lien

There are limited ways in which a CSP or a claim for lien can be fixed. If the mistake is
minor, such as if the name of the owner is incorrect or the legal description of the land is
incorrect, then a court can decide that the lien or certificate (as the case may be) is still
valid.
However, great care still has to be taken to ensure that no mistake is made.

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7. REFERENCE

Following is a list of references utilized while studying and analysing content for this report.
1. https://brightspace.algonquincollege.com/d2l/le/content/317109/viewContent/480101
0/View
2. https://www.ontario.ca/laws/statute/90c30/v6
3. https://www.attorneygeneral.jus.gov.on.ca/english/construction_law_in_ontario.php#:
~:text=What's%20changing-,Construction%20lien%20and%20holdback
%20rules,materials%20to%20improve%20the%20property.&text=Contractors%20and
%20subcontractors%20have%2060,to%20start%20a%20court%20action.
4. https://gowlingwlg.com/en/insights-resources/articles/2017/ontario-reforms-the-
construction-lien-act/
5. https://www.gvca.org/en/membership/resources/Documents/Laypersons-Guide-to-
the-Construction-Act-Second-Edition-WEB.pdf
6. https://www.gvca.org/en/membership/resources/Documents/Laypersons-Guide-to-
the-Construction-Act-Second-Edition-WEB.pdf

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