A year later, the job is barely started, your home is a mess, the project is way over budget and you are thinking about suing. Or you have been sued by a contractor that you haven’t met but understand that he or she was to complete a portion of the work. Are there any special considerations that apply to a legal dispute over renovation or construction work?
WHAT IS A CONSTRUCTION LIEN?
Ontario's Construction Lien Act creates special protections to ensure that construction contractors are paid fairly. The act allows a contractor who claims that he/she has not been paid to register a construction lien against the property on which it has performed work. A construction lien is a registration placed on title to the property and provides notice that there is a dispute over payment for work done. This will effectively prevent you, the owner from selling your property until the dispute has been resolved.
WHY DO WE HAVE CONSTRUCTION LIENS?
The law allows the registration of construction liens because of the unique nature of the construction industry. Work on a construction or renovation project will often be performed by subcontractors who sign a contract with the general contractor, or with another subcontractor, but who do not have a contract with the owner of the property. However, the work done by the subcontractor improves the property and increases its value to the benefit of the property owner. As a result, subcontractors who claim they have not been paid are allowed to register construction liens, even though the disagreement is with the general contractor, not you, the owner of the property.
You, as the property owner however, will have liability limited to 10 percent of the value of the work performed. What this means is that you are expected to refrain from paying the general contractor 10% of the contract price (i.e. 10% should be deducted from the amount you pay to the general contractor in case the general contractor fails to pay the subcontractors). Additionally, if a construction lien has been registered but you wish to sell the property, you may pay the funds in dispute to the court which will hold this money until the outcome of the lawsuit has been decided and the court has determined who is entitled to this money. Meanwhile, the lien is removed.
RELEVANT TIME LIMITS
A number of time limits apply under the Construction Lien Act and, as a homeowner; you may be able to rely upon these time limits to have the construction lien against your property removed. On the other hand, if you are a contractor, it is important that you are aware of these time limits and that you move quickly to protect your rights. The first basic requirement is that a lien be registered on title within 45 days of when the work is completed or abandoned. The second requirement is that a lawsuit be started within 45 days after the last day on which the lien could have been registered (i.e. 90 days after the work is completed or abandoned). The third requirement is that the lawsuit must be ready for trial within two years after it was started. If any of these requirements are not met, the lien may be removed. However, the contractor is still permitted to sue the property owner, although it will not be permitted to benefit from the security provided by a construction lien.
ROLE OF CONSTRUCTION LIEN MASTERS
Construction law is a highly specialized field and, in Toronto, most construction lien cases are decided by masters, rather than judges. Masters are judicial officials who are less powerful than judges and normally deal with procedural issues in a lawsuit. The masters have developed expertise in construction law issues and normally deal with all aspects of these cases, including the trial.
This article provides only a very basic overview of how the law governing construction liens operates. If you are a homeowner involved in a dispute with a contractor, or if you are a contractor and have not been paid, please contact us for more information about your rights under the Construction Lien Act.
Walker Law's Andrew Ostrom also contributed to this article.