Construction Lien and COVID-19: Here's What You Need To Know
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Here's a fact: if there's one industry that's been hit hard during the COVID-19 pandemic, it's the construction industry. Considering how much construction there is in the City of Toronto or the Province of Ontario, ranging from individual homes to skyscrapers, you can bet the industry is on hard times. So what happens if you are a construction company, let's say a contractor or subcontractor, and the party you contracted with is not paying you? What happens if you are an owner of a home, office building, or other property, and due to the pandemic, you are unable to pay your contractors, subcontractors, and possibly even sub-subcontractors?
As a fully licensed Real Estate lawyer in the Province of Ontario, which includes my Construction Law practice, fear not: there is usually always a right path to take.
If you are an unpaid contractor, subcontractor, or sub-subcontractor, your most likely first step will be to register a construction lien. A construction lien basically says to the party that you contracted with: since you didn't pay me, I will now encumber the property's title. That's basically a fancy word for: "if the property owner ever tries to sell the building or tries to register a mortgage - good luck". In fact, according to the Construction Act, even a subcontractor, who only contracted with the project's contractor (not the property owners), will still be able to encumber the property's title.
People who are interested in buying property don't like construction liens. It's a huge red flag. A construction lien acts as a roadblock. In other words, during a buyer's due diligence of a property, if a construction lien is found, there's a great chance steps don't go any further until the construction lien is removed. Same goes for a bank that is investigating whether providing property owners with a mortgage is a good thing or not.
Due to COVID-19, there have been a few recent developments regarding construction liens. This is especially true for the limitations period. Here are a few things to know about construction liens:
Now what about property owners? What can they do if business has been on the decline due to the pandemic, and they are unable to pay their contractors? Ideally, it's best to pay their contractors in full, but if that's impossible, striking a deal with them could work out. That would also avoid litigation, that could prove costly. However, if the property owner is disputing the invoiced amount of provided by the contractor, or is not satisfied with the quality of work by the contractor, there is another option: vacating the lien.
Here, the lien needs to already be registered in order to vacate the lien. Vacating a lien basically means that the property owner will pay the amount of the invoice (plus additional security costs) to the court. The contractors would then have to fight for the money in court - and prove their services are in fact worthy of their invoiced totals. Sometimes, contractors don't feel the effort is worth it - and bow out. Perhaps more important, vacating a lien gets rid of the registered lien to title. Meaning, that a red-flag that property-buyers or banks might shy away from, suddenly disappears. The property will no longer be encumbered by a construction lien.
The world of construction liens can be tricky, and is in no way an easy process to grasp. It's best to talk to a construction lien expert when it comes to these issues. If you have any questions or comments on construction liens, I would love to hear from you. If you are in the construction industry and/or the pandemic has been a burden to your business, give me a shout!
Aaron Miller is a Toronto and Ontario based lawyer, who is the proud owner of Aaron Miller, Barrister & Solicitor, as well as Legal Counsel to Executive Furniture Rentals in Toronto. Aaron can be reached at aaron@aaronmilleryourlawyer.com, or at 416-659-6665.
Here's a fact: if there's one industry that's been hit hard during the COVID-19 pandemic, it's the construction industry. Considering how much construction there is in the City of Toronto or the Province of Ontario, ranging from individual homes to skyscrapers, you can bet the industry is on hard times. So what happens if you are a construction company, let's say a contractor or subcontractor, and the party you contracted with is not paying you? What happens if you are an owner of a home, office building, or other property, and due to the pandemic, you are unable to pay your contractors, subcontractors, and possibly even sub-subcontractors?
As a fully licensed Real Estate lawyer in the Province of Ontario, which includes my Construction Law practice, fear not: there is usually always a right path to take.
If you are an unpaid contractor, subcontractor, or sub-subcontractor, your most likely first step will be to register a construction lien. A construction lien basically says to the party that you contracted with: since you didn't pay me, I will now encumber the property's title. That's basically a fancy word for: "if the property owner ever tries to sell the building or tries to register a mortgage - good luck". In fact, according to the Construction Act, even a subcontractor, who only contracted with the project's contractor (not the property owners), will still be able to encumber the property's title.
People who are interested in buying property don't like construction liens. It's a huge red flag. A construction lien acts as a roadblock. In other words, during a buyer's due diligence of a property, if a construction lien is found, there's a great chance steps don't go any further until the construction lien is removed. Same goes for a bank that is investigating whether providing property owners with a mortgage is a good thing or not.
Due to COVID-19, there have been a few recent developments regarding construction liens. This is especially true for the limitations period. Here are a few things to know about construction liens:
- Under the Construction Act, an unpaid contractor, sub-contractor, or sub-subcontractor will technically have a lien on the last day they provided services and/or materials on the job site. This day could be when a construction project is complete, or on the day a contractor, sub-contractor, or sub-subcontractor has been dismissed from the project. This confuses a lot of people, but the truth is, you will already have a lien on the day you are no longer working on site (and you are still unpaid). When people come to me and say that "want a lien", they are actually talking about registering a lien.
- Starting from the last day you provided services and/or materials, an unpaid contractor, sub-contractor, or sub-subcontractor will only have 60 days to register their lien. If you don't register, your lien will expire. Therefore, it's smart to act fast.
- A construction lien isn't fully enforceable unless you perfect your lien. In order to perfect your lien, you will have to file a Claim in Court. This will usually always be in the Ontario Superior Court of Justice (Civil). You will only have 90 days after the last day you could have technically registered your lien to perfect your lien. If you don't perfect your lien after this 90 day period, your registered lien will expire.
- As with other areas of the law, the statute of limitations period in Ontario has technically been on stall (suspended) for the most part since March 16, 2020. The Construction Law bar for the province has mostly acknowledged that March 16, 2020 was applicable to construction lien timelines as well. However, unlike other areas of the law, the Office for the Attorney General of Ontario amended the suspension for construction lien purposes as of April 16, 2020. Therefore, since April 16, 2020, the statute of limitations period has been retroactive to March 16, 2020 (i.e. as if one-month never happened). In other words, for construction liens, the statute of limitations is back in business.
Now what about property owners? What can they do if business has been on the decline due to the pandemic, and they are unable to pay their contractors? Ideally, it's best to pay their contractors in full, but if that's impossible, striking a deal with them could work out. That would also avoid litigation, that could prove costly. However, if the property owner is disputing the invoiced amount of provided by the contractor, or is not satisfied with the quality of work by the contractor, there is another option: vacating the lien.
Here, the lien needs to already be registered in order to vacate the lien. Vacating a lien basically means that the property owner will pay the amount of the invoice (plus additional security costs) to the court. The contractors would then have to fight for the money in court - and prove their services are in fact worthy of their invoiced totals. Sometimes, contractors don't feel the effort is worth it - and bow out. Perhaps more important, vacating a lien gets rid of the registered lien to title. Meaning, that a red-flag that property-buyers or banks might shy away from, suddenly disappears. The property will no longer be encumbered by a construction lien.
The world of construction liens can be tricky, and is in no way an easy process to grasp. It's best to talk to a construction lien expert when it comes to these issues. If you have any questions or comments on construction liens, I would love to hear from you. If you are in the construction industry and/or the pandemic has been a burden to your business, give me a shout!
Aaron Miller is a Toronto and Ontario based lawyer, who is the proud owner of Aaron Miller, Barrister & Solicitor, as well as Legal Counsel to Executive Furniture Rentals in Toronto. Aaron can be reached at aaron@aaronmilleryourlawyer.com, or at 416-659-6665.
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