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CONSTRUCTION LIENS

OVERVIEW: p. 864-866;

The construction pyramid: the contractual relationship between owner and general contractor with a hierarchical web of
subcontractors resembling a pyramid that describes the modern construction process.

Section 14(1) of the Construction Act (CA): "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 lien creates an interest in the land in favour of those who supply materials or services, thereby creating
security.
- This prevents the owner from receiving improved land w/o making payment for the improvement.

- This is especially important to subcontractors who have no right to bring an action for payment under a contract.

The general contractor’s lien secures the general contractor the full amount owing by the owner under the contract.

The subcontractor’s lien secures the owner’s obligation to maintain the holdback against the owner’s interest in the land
and buildings improved by the members of the construction pyramid.

While the right to lien arises as soon as the work on the contract commences, registration is necessary to preserve the
lien.

CA s. 20 provides for general lien where services/materials supplied concurrently by same contractor to several sites
owned by single owner. A general lien attaches to each of the sites equally for the full extent of all moneys that are owed.

4 requirements for registration of general lien:

- common ownership of properties;

- single contract;
- supply under single contract
- contract does not provide that lien rights arise on lot-by-lot basis.

In addition to the lien and holdback structure, CA ss. 7-8 provides a trust remedy: all funds received by a party in the
payment chain are held in trust for the next person in the chain.

HOLDBACK STRUCTURE: p. 866-867(L)

- Each payer (i.e. owner, general contractor, subcontractor, etc.) on a contract or subcontract is required to retain a
holdback of 10 per cent of the price of the services or materials as they are actually supplied under the contract or
subcontract until all liens that may be claimed against the holdback have expired or have otherwise been satisfied
or discharged per CA ss. 22 and 24.
- The purpose of this holdback is to create a fund to which lien claimants may look if they are unable to recover
from the person with whom they have a direct contract. 
- The amount of the holdback may be insufficient to satisfy all claims made against it, thus per stirpes distribution
priority rules apply, those on the same level of the pyramid sharing pro rata.
- In general, the owner's exposure to a subcontractor or supplier lien claimant, with whom the owner has no direct
contract, will be limited to the amount of the holdback. 
- Notice holdback arises from CA s. 24(2) requiring every payor to retain in addition to the 10%, an amount equal to
the value of any lien of a party lower in the chain when given written notice.
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TIME LIMITS FOR ENFORCING A CLAIM FOR LIEN: p. 867-869

Specific time limits for a claim for lien. The lien must: (1) Be preserved by registration against the title to the property, and
(2) Be perfected by the commencement of a court action. 

Preservation of Lien Registration of a claim for lien on title of the premises in the proper land registry office.
Claim
Or
(CA ss. 31, 34)
Service of notice of lien in respect of provincial Crown land to the appropriate Crown office and
any other owners.

Or

Delivery/service of notice of lien in respect of municipal lands through electronic delivery

mechanism or deliver to the municipal clerk.

If the prime contract, procurement process or underlying lease was entered into before July 1,
2018:

Within 45 days after the earliest of a triggering event:

- Publication of a certificate of substantial performance of the contract
- Last supply of material or services
- Completion of a contract
- Completion of a subcontract

Or

If the prime contract, procurement process or underlying lease was entered into on/after July
1, 2018:

Within 60 days after the earliest of a triggering event:

- Publication of a certificate of substantial performance of the contract
- Last supply of material or services
- Completion of a contract
- Completion of a subcontract
- Termination of the prime contract
- Abandonment of the prime contract (if subcontractor’s lien)

Perfection of Lien Commence an action to enforce the lien:

Claim - Cause statement of claim and certificate of action to be issued, and
- Register certificate of action against the property (if applicable).
(CA s. 36)
If the prime contract, procurement process or underlying lease was entered into before July 1,
2018:

Within 90 days of the triggering event.

If the prime contract, procurement process or underlying lease was entered into on/after July
1, 2018:

Within 150 days of the triggering event.

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Set Action Down for Within a period of two years from the date of commencement of the action.
Trial
Failure to set action down for trial will cause lien to expire and the lien right will be lost.
(CA s. 37)

VACATING THE LIEN: p. 870-871

An owner with a lien on his property will have to remove it from title before any prospective purchaser will close a
transaction. In order to clear title, the owner has a few options:

(1) Security can be posted into court for the full amount of the claim plus 25 per cent for costs in order to vacate the
lien from title, or
(2) The owner can negotiate with the lien claimant for the payment of an amount sufficient enough to settle the
lien in exchange for a discharge. 

While a discharge of the lien is ideal, if the lien is vacated, it will no longer attach to the land, and any prospective
purchaser can be satisfied that the property is not encumbered. 

PRIORITY OF LIEN CLAIMS OVER MORTGAGES: p. 871

Three classes of mortgages under s. 78 of the CA:

- “Building mortgages” – taken “with the intention to secure the financing of an improvement”
- Non-building prior mortgages –registered prior to the time the first lien arose
- Non-building subsequent mortgages –registered after the time the first lien arose
In determining priority, look to three considerations: 1) when the mortgage was registered, 2) when the mortgagee made
advances to the owner, 3) the amount of the advances

78(2) Building mortgages are subordinate in priority to lien claims to the extent of any deficiency in the holdbacks
required to be retained by the owner

Lien claims will be satisfied prior to any building mortgagee’s claims, BUT only to the extent of any deficiency
in the holdbacks.

78(3) Non-building prior mortgages have priority over liens arising from the improvement to the extent of the
lesser of the actual value of the premises at the time the first lien arose and the total of all amounts advanced
prior to that time under the mortgage

In this situation, non-building mortgagees will have priority over subsequent construction liens, BUT only to
the extent of the value of the premises (at the time the lien arose) or the sum of all amounts advanced,
whichever is lower. Hence, lien claimants can still recover for claims that exceed the mortgagee’s claim
value.

78(4) Advances made under non-building prior mortgages subsequent to the time that the first lien arose have
priority over the lien claims to the extent of the advance, provided that

- At the time when the advance was made no preserved or perfected lien existed against the premises;
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or

- Prior to the time when the advance was made, the person making the advance had not received
written notice of a lien

In this situation, a lien arises subsequent to a non-building mortgage. Advances are made under the non-
building mortgage subsequent to the lien arising. The mortgagee will have priority over the lien claims (in the
amount of any advances) as long as the lien claims were not preserved/perfected when the advances were
made OR the mortgagee did not receive notice of the lien.

78(5) Liens arising from an improvement have priority over mortgages registered after the first lien arose to the
extent of any deficiency in the holdbacks require to be retained by the owner.

If it can be established that a mortgage was registered after the first work was done or first materials were
supplied to the improvement, a lien claimant will have priority over the mortgage.

SPECIFIC PRIORITY DISPUTES: p. 871-872

Workers’ wage Claims for wages of workers who supplied services to the project (includes claims for benefits
claims payable to a worker’s trust fund) have priority over all other liens in the same class

(to a max. amount a worker would earn in 40 regular-time working days)

s. 81, CA

Between lien All amounts available to satisfy lien claimants are distributed rateably among members of each
claimants class (i.e. persons who supplied services or materials to the same payor)

Liens of class members take priority to the payor of that class

Subcontractor claims have priority over the claim of the general contractor, etc.

General liens General liens rank with the class to which they otherwise belong, divided by the number of
premises to which the person supplied services/materials.

The balance of the general lien ranks next in priority to all other liens against the premises, whether
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or not of the same class.

Judgments, CA liens have priority over all judgments, executions, assignments, attachments, garnishments,
executions, etc. and receiving orders, except those executed or recovered upon before the time when the lien
arose.

Insolvency Upon insolvency of a payor, beneficiaries of the trust hold a priority with respect to trust funds, so
long as liens are proven. The holdback and trust funds are then distributed.

Remaining funds are distributed in accordance with the priorities in place had the liens been
proven.

s. 85, CA

Lenders to a If those who are making advances to trustees (appointed under Part IX of the CA) are granted an
trustee under the interest in the premises, those interests will have priority (to the extent of advances made) over
CA every lien claim existing at the date of the trustee’s appointment.

LEASEHOLD IMPROVEMENTS: p. 869-870

CA s. 19: Where a tenant commissions an improvement, the freehold interest may become subject to a lien. The
proper procedure must be followed:

If the leasehold interest was entered into prior to July 1, 2018 and the contract for the improvement was entered
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into between July 1, 2018 and December 6, 2018:

Contractor notice to The contractor must provide written notice to the landlord of the improvement to be made.
landlord
Contents of NOTICE TO BE GIVEN TO LANDLORD by contractor:
- Name of the landlord and reference to its capacity as landlord
- Details of the contract entered into between the contractor and the tenant
- Description of the improvement to be made
- Sufficient description of the premises to identify the landlord’s property
- Reference to the contractor and tenant by name and capacity
- Language sufficient to make it clear that the contractor is looking to the landlord’s interest
in the land, in addition to the tenant and its interest in the leasehold, to be responsible for
the improvement to be made
- Additional language to make it clear that the landlord must provide written notice back to
the contractor within the time prescribed in s. 19(1), wherein the landlord is to state that it
disclaims responsibility for payment of the improvement to be made
- Additional language sufficient for the landlord to know when the 15-day period
commences, within which it may disclaim liability
Written response The landlord must provide a written response declaring that it assumes no responsibility for the
from landlord improvement to be made within 15 days of receipt of the contractor’s notice.

If landlord responds within 15 days of receipt of notice  If the landlord declines to assume
responsibility, the contractor will only have a right to lien the leasehold interest.

If landlord fails to respond within 15 days of receipt of notice  Absent a landlord response, the
[freehold] interest of the landlord shall be subject to a lien to the same extent as the interest of the
tenant.

If the contract for the improvement was entered into after December 6, 2018:
- Landlords are subject to holdback requirements and will have liability to lien claimants to the extent of 10% of
any payments made to tenants for improvements (i.e. tenant inducements)
- Landlords must give notice to any registered lien claimants if the landlords intend to enforce rights of forfeiture or
terminate the tenant’s lease

- Landlords are now subject to requests for information under s. 39

- Potential lien claimants are no longer required to give pre-construction notice of improvement to the landlord to
lien the landlord’s interest.