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Kenneth W. Golish, Law Office |
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Posted 1998/09/10
Information about the Construction Lien Act
(Ontario)
This article is several years old.
The author no longer practices in this area and does not give advice on this subject.
Contractors and suppliers of work, services and
supplies to real property have protections controlled by the Construction
Lien Act. You may find the act (R.S.O. 1990, Chapter C-30)
on the World Wide Web at http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90c30_e.htm.
The key provisions of the act are as follows:
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A lien attaches when the work is done, regardless
of privity;
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As long as no one files a notice of lien,
the amount of lien is limited to amount owing under contract;
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The contract implies a provision for a 10%
hold-back;
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Filing notice in the county land registry
office preserves the lien;
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Further perfection of the lien requires the
commencement of an action;
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The act provides that rights granted under
the act may not be waived.
The basic provision is s. 14 which provides that
a lien attaches when work is first performed:
14. (1) 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.
15. A person's lien arises and takes effect when
the person first supplies services or materials to the improvement. R.S.O.
1990, c. C.30, s. 15.
The lien applies to everyone providing services
regardless of any privity of contract. Thus a subcontractor may have
a lien even if the owner has paid the contractor. Although the lien
takes effect when the work is first done, the property owner has certain
protections. The basic protection is that the lien is limited to
the amount owing under the contract. The act makes this provision:
17. (1) The lien of a person is limited to the
amount owing to the person in relation to the improvement and, subject
to Part IV (holdbacks), it is further limited to the least amount owed
in relation to the improvement by a payer to the contractor or to any subcontractor
whose contract or subcontract was in whole or in part performed by the
supply of services or materials giving rise to the lien.
While the lien is limited to the amount owing under
the contract, a hold-back provision of 10% applies. A payer must
hold-back 10% of the amount due until 45 days after the completion of the
work. Thus if the contract provides for a payment of $10,000 on a
given day, $1,000 must be held back until 45 days after the work is done:
Basic holdback
22. (1) Each payer upon a contract or subcontract
under which a lien may arise shall retain a holdback equal to 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 as provided in Part V, or have been satisfied,
discharged or provided for under section 44 (payment into court).
The act provides for the expiry of the lien in s.
31. Section 31 is complicated, dealing with such issues as the certification
of completion of certain work and the way substantial completion is defined.
In simple terms it provides that the lien, unless preserved, expires 45
days after the supply of the service or materials.
The lien must be verified by affidavit and the normal
practice is to serve the party effected with actual notice of the lien.
As a practical matter, a claim for lien is not made unless there has been
some default. To further perfect the lien, an action must be commenced
within 45 days of filing the lien.
Parties cannot contract out of the basic provisions
of the act and where a contract does not specifically require a hold-back,
one is implied:
No waiver of rights
4. An agreement by any person who supplies services
or materials to an improvement that this Act does not apply to the person
or that the remedies provided by it are not available for the benefit of
the person is void. R.S.O. 1990, c. C.30, s. 4.
Contracts to conform
5. (1) Every contract or subcontract related
to an improvement is deemed to be amended in so far as is necessary to
be in conformity with this Act.
Retention of holdbacks authorized
(2) Without restricting the generality of subsection
(1), where the purchaser is an owner, an agreement of purchase and sale
that provides for the making or completion of an improvement shall be deemed
to provide for the retention of holdbacks by the purchaser, and tender
by the purchaser on closing is not defective by reason only that the purchaser
does not tender the amount of the holdbacks. R.S.O. 1990, c. C.30, s. 5.
As a practical matter, all contracts should make
specific provision for the hold-back. When that is not done, the
owner is entitled to hold-back 10% until 45 after the work is completed
provided the owner has no notice of any liens.
When making a payment, it is best to do a subsearch
of the property at the county land registry office to check for any liens
that may have been filed.
I have had occasion to perform such searches
for clients. In certain circumstances, the owner might wish to forgo
such a search. The cost of a subsearch might outweigh the benefit
in obtaining it. For instance, if the amount owing under a
contract is less than $500, the search may not be economic.
In addition to the standard fee for searching a title, the title search
involves a government charge of $8.00 for each parcel identification number
(P.I.N.). A property may only have one such P.I.N., but sometimes
may have more. For a property in Essex County, you would be
able to determine the number of P.I.N.s if you have the original or a copy
of the property transfer/deed. After January 1, 1996, every property
transfer/deed in this county made requires inclusion of all applicable
numbers.
Law office of Kenneth W. Golish.
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