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Advancing a construction lien claim in Ontario.

Advancing a Construction Lien Act (CLA) lien claim in Ontario, Canada, is a two-step process. The first step-preservation--was the subject of a previous article, which can be found in the May issue of Business Credit magazine. This article addresses the second step: perfection.

Time Limit to Perfect

As noted in the preservation article, there is a strict time limit within which a lien claimant may preserve its lien, typically done by registering a claim for lien on title to property. The time limit varies depending on where the lien claimant falls in the construction pyramid, but in a best-case scenario, the lien claimant will have 45 days from the date of last supply within which to preserve its lien.

A preserved lien has to be perfected, again with a 45-day limit. However, this second 45-day period begins to run not on the date the lien was preserved, but rather from the next day after the lien could have been preserved. Also, if the last day to preserve or perfect falls on a weekend or a holiday, the deadline defaults to the next business day.

As is the case with preservation, missing the deadline to perfect a lien is usually fatal to the lien claim.

How a lien is perfected depends on whether the lien remains on title at the time of perfection.

Perfecting a Lien Vacated from Title

A preserved lien ties up an owner's ability to sell, mortgage or otherwise deal with its interest in the land. Owners have to be able to deal with their land during a lien proceeding, and so they (or anyone else) can remove the lien from title by posting security with the court. This can be done without notice to the lien claimant if the full amount of the lien is posted, plus security for costs. The additional security for costs is calculated as 25% of the amount of the lien, up to a maximum of $50,000. This means that for any lien claim under $200,000, the additional security is 25% of the claim.

For any lien claim of $200,000 or greater, the security is capped at $50,000.

The CLA allows the security to be in the form of certified check or letter of credit, but the most popular means is by way of financial guarantee bond. Once the security is posted, the claim for lien is vacated from title to the property. Because of the popularity of bonds for posting security, it is colloquially known as "bonding off" a claim for lien.

A lien that has been bonded off is perfected by commencing an action against the person with whom the lien claimant has contracted. The action is started using a Statement of Claim. The document should include allegations that the defendant has failed to pay the plaintiff the amounts owed, and that in default of payment following trial, the claim should be paid out of the security posted with the court.

Once that claim has been issued (that is, stamped by the court), the bonded-off lien is perfected. Again, this must happen within 45 days from the last date on which the lien could have been preserved.

Perfecting a Lien Registered on Title

If a lien remains registered on title when it is perfected, the lien claimant still has to commence an action against the defaulting payer alleging nonpayment of funds. However, the lien claimant must also allege that, failing payment, the property should be sold. Its lien claim entitles it to be paid out of the proceeds of sale in priority to the owner. Accordingly, the owner must also be named as a defendant. There are scenarios in which a lien claim will enjoy part or full priority over a mortgage. In those cases, the mortgagee (or mortgagees, if there are several mortgages over which priority is sought) must also be named as defendants. Finally, to ensure all bases are covered, the document should also allege that in the event the lien is bonded off in the future, the claim should be paid out of the security that will be posted with the court.

Once the claim has been issued by the court, the lien claimant must also obtain a Certificate of Action from the court and register that document on title to the property that is the subject of the lien. These last steps, obtaining and registering the certificate, must all happen within 45 days from the last date on which the lien could have been preserved.

Prosecuting a Perfected Lien Claim

Once the lien is perfected, the action will proceed like a "regular" Ontario civil court action, and the defendants will deliver Statements of Defence refuting the claims made by the lien claimant. In a regular action, the parties are automatically obligated to disclose and exchange relevant documents via Affidavits of Documents, and then proceed to Examinations for Discovery (out-of-court sworn testimony similar to depositions).

In lien actions, however, the parties are required to apply for leave of the court to proceed with disclosure. The usual procedure is for the lien claimant to obtain an order for trial, which gets the ball rolling on a series of pretrial court attendances in which a judicial officer (either a judge or a specially trained construction lien master) will make procedural orders. These orders usually include an obligation to exchange documents and some form of oral discovery (though it can be limited in time or scope to ensure that the discovery is not disproportionate to the amount in issue).

Once all pretrial steps have been completed, the lien action can go to trial.

Deadline to Set Down for Trial

There is one final deadline imposed on a lien action by the CLA. The lien action procedure is intended to lead to quick determinations of lien claims by the court. With this in mind, the CLA requires a lien action to be set down for trial within two years of the date on which it was perfected. If the action is not set down within this time, any party can move to dismiss the lien claim, with or without notice. In practice, this is typically interpreted as meaning only the lien portion of the action is dismissed (and that portion of the claim for nonpayment based on contract can continue). Importantly, the trial itself does not have to occur within this two-year period, but the action merely has to be "set down" for trial.

A Question of Time

The lien is an extraordinary remedy, with huge impacts on an owners ability to deal with its property. To balance the competing interests of the lien claimants desire to have security for its claim with the owners desire to free up title to its property, the CLA requires a lien claimant to act very quickly to preserve and perfect its claim and will not allow delay in the prosecution of the claim once perfected. Failure to meet these deadlines will be fatal to the lien claim.

Chad Kopach, Esq., is a partner with Blaney McMurtry LLP in Toronto and is certified by the Law Society of Upper Canada as a specialist in construction law. Chad can be reached at ckopach@ blaney.com or at 416-593-2985.
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Title Annotation:SELECTED TOPIC
Author:Kopach, Chad
Publication:Business Credit
Geographic Code:1CONT
Date:Jun 1, 2017
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