No one likes to see a lien on a project – not the
owner, not the financier, not even the contractor or supplier who
filed the lien. It frequently destabilizes the project as fears of
non-payment lead to crews pulled or financing stalled, resulting in
even greater delay and risk to the lien claimant for whom payment
is already late. Most in the industry avoid liens at all cost, but
too often that cost falls on those who the lien was intended to
protect. By clear communication and compliance with the legislation
from the outset, fallout can be contained without sacrificing the
underlying intention to protect people at risk of never being paid
for their work and materials.
Unlike a "personal" action which gives successful
claimants rights against the opposing party, a lien pursuant to the
Mechanics' Lien Act immediately stakes an interest in
the real property that has been improved by the unpaid work or
materials. Quite a phenomenon in an
"innocent-until-proven-guilty" based legal system: rather
than (a) make a claim, (b) prove the claim and (c) enforce the
judgment by registering it against property, you (a) register the
claim against the property and (b) then prove it. It's more
kind of approach.
The process requires positive action by the claimant; there is a
general right to a lien for the value of work in or on, or
materials placed on land, but to enforce that right a lien claim
must be filed and the claimant must comply with the Act. Generally
speaking, lien claims must be filed within 30 days of completion or
abandonment or from the last supply of work or materials. 90 days
from completion, abandonment or last supply, the lien claim stops
existing, unless in the interim the claimant has started legal
action and registered a certificate in the Mechanics' Lien
Registry, at the Registry of Deeds. Beyond the technical
requirements in the Act, the claimant must be able to demonstrate
that the supply was to the property, and not just to the owner, for
the lien to be enforceable against the property. All too often lien
claims are over before they begin because they are not filed on
time or claimants cannot demonstrate that their materials were
placed on the specific land identified in the lien.
Because of the vulnerability of all parties, the unpaid claimant
and the owner of a "liened" project alike, the process is
intended to be faster than regular litigation. Nonetheless, it can
still bring down a project, so there are options to lift the lien
until the issues behind the non-payment can be judged. If the party
primarily responsible for payment has maintained the holdback
obligations, they may be able to pay the holdback into court and
wash their hands of the matter, leaving the disputing parties in
the contractor-subcontractor-supplier chain to fight over
entitlement. Alternatively, there may be an option to post security
in court, to replace the interest that the lien has in the real
property with alternate security: a lien bond, a letter of credit
or a payment into court. The key is that no one is prejudiced by
the alternate security and the project can continue until the issue
is ruled on or otherwise resolved.
Apart from the Crown, the Mechanics' Lien Act
applies to everyone in the province. While you can "contract
out" of the Act, you can only waive your rights and
not the rights of others. An owner and contractor might agree not
to be bound, but that does not mean that others forfeit the right
to a lien or a claim against a holdback. To minimize potential
exposure, it is generally better to work with rather than against
the Act: be clear from the outset that that you are aware of your
legal rights and obligations – that holdback obligations
with be met and that a lien will be filed if circumstances oblige
it, not to be damaging, but to preserve rights and interests.
Should an issue arise, you'll be happy you did.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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