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Construction Lien Litigation

Civil Litigation

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Construction Lien

  • Introduction

  • The Two Acts

  • Overview

  • Preserving a Claim for Lien

  • Perfecting the Claim for Lien

  • Prompt Payment

  • Adjudication

  • The Construction Action

  • The Construction Lien Trial



Construction lien litigation in Ontario forms a particular branch of civil litigation.  While the procedure tends to follow that of regular civil litigation, there are special rules which govern the construction lien procedure.  Those rules are a unique mixture of the provisions of the Ontario Construction Act (and its predecessor, the Construction Lien Act), the Ontario Rules of Civil Procedure, and how the Ontario Superior Court of Justice in each county prefers to process construction lien actions within that county.  The Two Acts


On July 1, 2018, the Construction Lien Act became the Construction Act.  Some provisions of the new Act came into force on that date, while others came into force on October 1, 2019.


This does not mean that every construction matter now falls under the new provisions of the Act.  There are transition rules designed to determine whether a particular construction arrangement is to be governed under the former Act, or under the new Act  The rules are not always easy to apply and determine. 


The time period to preserve a Claim for Lien by registration is now 60 days as opposed to 45 days under the old Act.  The time to perfect the Claim for Lien has been extended. 


As a word of caution, if there is any doubt as to which Act applies to your case, always proceed as if you are under the shorter time periods for all events.  If it is found that you are under the old Act, it is no excuse to say you had an honest belief you had the additional time provided under the new Act.


The Two Acts




The Construction Act defines a contractor as one who has a direct agreement with an owner to supply services or materials.  The owner might retain one contractor to manage a project (often regarded as the general contractor), or be active in the management and retain several contractors. 


A sub-contractor supplies services or materials to a contractor or another sub-contractor.  A sub-contractor does not have a direct agreement with an owner.  On a large project, a sub-contractor could have an agreement with more than one contractor or other sub-contractor, and even an agreement with the owner, in which case, they would be a contractor for the services or materials supplied to the owner, but remain a sub-contractor to different contractors. 


Knowing the parties to any supply arrangement is crucial, as there can be many roles being played, all of which fall into different categories under the Ontario Construction Act.  This will affect the timing of when a Claim for Lien must be registered and the holdback obligations of those who are obliged to make payment. 


Knowing what is supplied is also crucial as the Act defines “services” and “materials”, and sets out qualifications for rental of equipment and drawings, all of which leads to the determination of what constitutes an “improvement”.  


During the course of a construction project, a balance is usually sought between the funds available to pay for the construction and the actual value of the property as the construction proceeds.  In some instances, the owner may have funds readily available to pay for the cost of construction.  Here, the owner should be making regular payments as the work proceeds. In other instances, the owner may be borrowing funds to finance the construction. 


A contractor provides work and materials to the construction project, thereby increasing the value of the land.  At the same time, it is common that the contractor provide these services on credit. 


A contractor would like to be paid at frequent intervals, thereby minimizing the amount of credit extended.  Indeed, the ideal contract for a contractor would call for payments in advance.  Many contractors, especially on residential projects, request a significant advance payment by way of a deposit.  Their rationale is twofold: first, to ensure that they will be paid; and second, so that they are not financing the construction project by paying for materials and labour from their own pocket. 


From the owner’s perspective, they do not want to pre-pay for the work.   They incur the risk that the work will not be done properly, or at all, once the payment has been made.   The balance often comes down to a question of will the owner properly pay once the work is supplied, versus will the contractor properly complete the supply if paid in advance.  The solution is to find a method by which the risk being thrown upon each party can be minimized. 


In scenarios where the owner does not make timely payments to the contractors, or where the contractors do not make timely payments to the sub-contractors, those persons who supplied work or material to the construction project have a right to register a Claim for Lien against the land.  As an aside, any contractor or sub-contractor can register a lien once it supplies services or materials to the construction project.  However, a question arises as to when that person was to receive payment under the terms of their particular agreement.  To the extent that their work or material served to increase the value of the land, they can then look to the land as a form of security for some, or all, of the amount owing to them.


In scenarios where a sub-contractor has supplied work or material to a contractor and has not been paid, then that sub-contractor has a right to register a Claim for Lien against the owner’s interest in the land.  Thus, the sub-contractor, who does not have an agreement with the owner, might be able to look for some payment directly from the owner.  This does not mean that the owner is automatically liable for the full amount owing to the sub-contractor.  Recall that the sub-contractor extended credit to the contractor, not to the owner. 


However, the owner does have certain obligations to protect the sub-contractors.  Those obligations are found in the holdback provisions of the Construction Act where some funds must be retained and not paid to the contractor for a period of time.  The basic holdback is 10% of the value of the work supplied by the contractor.  However, if the sub-contractor gives proper notice to the owner, then the holdback might be increased by the amount actually owing from the owner to the contractor.  A sub-contractor should never underestimate the difference it makes to deliver proper notice before an owner pays the contractor, as opposed to the day after payment.  The form of notice to be given, and the manner of giving the notice, must comply with the provisions of the Construction Act. 


The contractual relationship between the parties, and any required system of holdbacks, is often referred to as a pyramid, with the owner at the top.  From the owner is a branch which leads to each contractor who made an agreement with the owner.  There may be one or more contractors who make an agreement directly with the owner.  All of the contractors form one group as they have one item in common: they all made an agreement directly with the person above (in this case the owner).


From each contractor is a branch that leads to their sub-contractors with whom they made an agreement. Those sub-contractors form a new group.  The branches and the groups may continue with the result that there may be several groups leading up to the owner.  A material supply company that supplies to various contractors or sub-contractors on the same construction project could find itself in a group at the bottom of one branch of the pyramid, and, at the same time, in another group under through a totally different branch. 


It is important to remember how a person on any branch may be liable to those below them.  While the Construction Act does create responsibilities which flow from those above, to those below, the Act also gives them protection and limits their liabilities, provided they have followed the rules.  For example, where an owner complies with all of the holdback obligations, then the owner should not have to pay out more than the amount agreed upon with the particular contractor.  However, where the owner prematurely pays out the holdback funds to the contractor, the owner might have to pay those same holdback funds to a sub-contractor.  An owner, by prepaying the contractor, or by paying the contractor before the holdback period expires, could find that they are making a second payment, this time, directly to the sub-contractor.  The result being that the total paid out by the owner now exceeds the contact price with the contractor. 


One interesting scenario is where someone supplies work or materials to several individual properties within a new sub-division or housing project, all of which is owned by the same person or developer.  For example, $500.00 worth of materials were delivered to each of eight houses within the same project.  In this scenario, the supplier may be permitted to register one general Claim for Lien for $4,000.00 against all 8 houses if it can establish one general agreement for that supply.  However, if the orders were placed on a one by one basis, or if the agreement provided that the lien rights accrue and expire on a lot by lot basis, then the trade or supplier would be obliged to treat the orders as eight individual agreements, each with individual time limits and construction lien rights.  One must always be aware of the particular agreement so that compliance with, and protection under, the Construction Act is achieved. 


The Construction Act has very strict time limits for a lien to be registered.  While these are reviewed below, it is useful to mention it under two scenarios.  Where a general lien can be registered (for example work supplied to multiple properties under one agreement), the time period for registration will commence with the last supply to the last house.  However, if the orders were placed on a one by one basis, the time limits for each house will run from when the supply was completed for each particular house.  Thus, the contractor can continue to work at the same subdivision, but have already lost the right to lien some houses.  The concern for a sub-contractor is greater as the sub-contractor may not know the terms of the agreement or agreements between the contractor and owner.  The sub-contractor may think that lien rights have not expired based upon an erroneous presumption of the contractor-owner relationship. 


While a sub-contractor may feel it is a bit of an infringement on privacy to ask about  details of the main contract (ie between the owner and the contractor), the sub-contractor may be subject to the terms in that contract and may be prejudiced by failing to learn the terms.  Viewed from another perspective, should a sub-contractor want to be engaged by a contractor, and supply services on credit to that contractor, where the contractor refuses to disclose information?


Another problem area is when someone is asked to supply work or material to a tenant at a commercial property.  The supplier may not know that the person requesting the work is only a tenant and thus not the registered owner of the lands.  The question becomes, is the landlord, as the registered owner of the lands, potentially liable for some of the cost of the work  Under the prior Act, certain steps are mandatory if the supplier is to retain the right to lien the interest of the owner of the lands. To complicate matters, one could be the registered owner of the land, but not be the “owner” as defined by the Construction Act. 


The supplier could be left chasing the tenant who may have no ability to pay for the work.  To rub salt into the wound, the trade might be obliged to sit back while the landlord/owner receives the benefit of the work supplied.  Interesting and often complicated scenarios arise when the landlord has agreed to compensate the tenant for the cost of the work, but the tenant is the one who actually orders the work to be supplied.  Again, the importance of knowing exactly with whom you are dealing, and their interest in the land, should never be overlooked. 


One area of concern is the construction of new homes by builders or developers who intend to sell them to individual purchasers.  New home purchasers are afforded a unique level of protection.  In some scenarios, the construction lien will be lost if the sale of a new home is completed to a purchaser.  This may happen even if the contractor is well within the 60 day period to effect registration of a lien.  The time to preserve would be the earlier of the normal 60 day period and the date the sale of the new home is completed.  There are certain exceptions to this rule, but, as with all other exceptions, do not expect or rely upon them without a clear and careful discussion with a lawyer. 


The goal in any construction lien action is to collect the amount owing.  The ultimate remedy in any construction lien action is to sell the interest of the owner in the land if the amount which is found to be owing by the owner is not paid.  The steps below outline the general procedure when work or materials are supplied to privately owned land.  These steps differ where the work or materials are supplied to land owned by the government and certain institutions.  Though a contractor might have a lien for work supplied to a public roadway, the contractor would never be able to sell the roadway as a remedy to collect on the construction lien. 


Preserving a Claim for Lien


To review the steps to preserve a Claim for Lien and then to perfect the Claim for Lien, let us presume that you are either a contractor or sub-contractor.  While there are some technical differences, the basic thrust of the Construction Act remains the same. 


As a rule, there is a 60 day time period within which it is required that you register a Claim for Lien to protect your receivable.  A review of the agreement between you and the person with whom you contracted to supply the work or materials, and some information as to the construction project, will assist in determining when that 60 day period starts to run.  When you contact us, we will advise you of what information is required to complete this process. 


For most material suppliers and trades, the time period will start from their last day of supply of materials or the last day when work was performed.  Please note that the last day of supply or work means the last day that the supply or work adds to the value of the construction project.  It does not mean a day when you returned to make a minor adjustment, clean up the property, or check on some warranty issue.  It would be wrong to believe that the supply of a small piece of material can suddenly extend the time period relating to the supply of the main contract.  There may be many persons (eg owners, lenders) involved in the construction project who have an interest in knowing when the lien period should expire and has in fact expired. 


In some instances, the time period may run from when the overall construction project is substantially performed.  The Construction Act defines the “substantial performance” though it is not always simple to calculate and conclude the exact day when this took place.  For smaller jobs, there is usually not an independent person retained to monitor the progress and certify when the project is substantially complete.  For larger jobs, and almost all commercial construction projects, there is such a person being the payment certifier.  The certification will be published in the appropriate construction trade newspaper. 


The definition of substantially complete is based upon the entire construction project and not upon the work supplied by a particular sub-contractor.  There are rules about publishing notice of substantial completion. 


As a result, a sub-contractor might have started its work towards the end of the project, and part way through find that the project has been certified as substantially complete.  The lien period for the work up to the date of certification will expire 60 days after the certificate is properly published.  There is also a finishing holdback for the work after substantial completion.  However, that is not something one would quickly want to rely upon. 


The first step in preserving the Claim for Lien is identifying the legal description of the property and then conducting the appropriate title search to ascertain the legal ownership.  While this is usually not difficult for land in the city where a municipal address is available.  It can be challenging for rural areas.  Do yourself a favour by not waiting until the afternoon of day 60 to provide a vague address of a hard to locate property.  Advising that the building materials were delivered to a specific location, and identifying that location, is much different than advising that they were delivered near a poorly described location.  The better the information provided, the less time devoted to searching for the legal description and preserving your Claim for Lien. 

Often construction projects do not have room to store all of the materials being delivered.  As a result, a project manager might instruct a supplier to deliver the materials near, but not onto, the actual construction project.  Though the material was not delivered directly to the actual construction project, the Construction Act does afford protection.  In that case, the supplier has the right to lien the construction project lands, not the lands where the materials were temporarily stored.  This means we have to identify the actual lands where the construction project is located and be clear that the materials will be used at that project.  Complications arise when the materials are delivered to a more general storage area and there is no information on where they will be actually used.  Where delivery is not direct to the project, there must be some solid evidence of the construction project where they will eventually be used. 


Another difficulty arises when the properties appear, from the street, to be owned by the same person, but, in reality, are separate lots owned by different persons.  This is often a problem for large commercial properties.  However, it can also be found in residential scenarios.  Again, knowing the location of the construction project and ownership of the lands is required.  This is not something that is always easy or quick to determine. 


A word of caution about being “a little” late.  There is no grace period given if you are  a little late in complying with the prescribed time period.  The single exception is when the last day is a weekend or holiday.  In that case, the last day is moved to the next business day.  But, you should not think of that as permission to be late.  Make sure that you afford ample time to locate the property, complete the title search, and prepare the documentation which has to be registered. 


The registration is effected in the local Land Registry Office where the construction project is situate.  This is done electronically from our offices. 


Often, a trade or supplier extends credit for a period of time and does not feel the need to prepare for the registration process.  Then the person who is to pay that trade or supplier asks for an extension to make the payment.  A decision might be made to sit back and wait another week or two.  All too often, those extra days or weeks push the time period past the 60 days.  Sometimes, one has to think of the Claim for Lien as an insurance policy:  make the arrangements and, if need be, register the Claim for Lien in order to protect the account receivable. 


Once the Claim for Lien is registered on title, you have completed the first step: the preservation of the construction lien.  Immediately after the Claim for Lien is registered, we attend to delivering the appropriate notices as required by the Construction Act. 

Perfecting the Claim for Lien


The next step, after the Claim for Lien has been preserved, is the perfection of the Construction lien.


Timing: the preserved Claim for Lien must be perfected within 90 days from the last day that the Claim for Lien could have been preserved.  The actual day that the Lien was registered (ie preserved) is not relevant to the calculation of this time period. 


Perfection of the Claim for Lien requires several steps.  First, with the information provided by you, we will prepare a Statement of Claim which outlines the basis upon which you are claiming the debt.  Typically, the claim would be made against the person to whom you supplied the work or material, and everyone above that person, right to the owner.  As the ultimate remedy is the sale of the land, you might also make certain claims against persons who hold mortgages on the land.  Particular issues arise with regard to mortgage lenders, especially if there is a concern that the mortgage money was to finance the construction. 


The Statement of Claim must be issued in the office of the local Court Registrar for the Superior Court of Justice for the county in which the land is situate.  At present, issuing by electronic means is not an option where a Certificate of Action is also required (see below).


When the Statement of Claim is issued, we ask the Court to issue a document known as a Certificate of Action.  The Certificate of Action states that an action has been commenced in respect of the Claim for Lien and describes the land against which the Claim for Lien was registered.  That Certificate of Action is then registered on title to the land to evidence that you have taken the next step, namely, the issuance of the Statement of Claim.  Once the Certificate of Action has been registered against the land, you will have perfected the Claim for lien. 


There is no extension for the 90 day period to perfect the Claim for Lien.  There are several steps required to perfect the Claim for Lien.  Starting those steps towards the end of the 90 day period may mean you do not complete them in time.  As with the preparation and registration of the Claim for Lien, always leave ample time to ensure that all work can be completed prior to any time limit expiring. 


There are certain scenarios where it may not be mandatory that you issue a Statement of Claim, or issue and register a Certificate of Action.  It may be that another construction lien claimant on the same project, and in the same group as you, has issued a Statement of Claim and registered a Certificate of Action.  In that case, your preserved Claim for Lien may be sheltered under that other action.  Sheltering is acceptable if you are absolutely certain that you are, and will be, sheltered.  Always presume that perfecting your own Claim for Lien is required unless absolutely clear to the contrary.  If you have mistakenly believed your Claim for Lien has been sheltered, there is no way to correct that error and continue with your Claim for Lien.


Persons who have an interest in the land or project, such as the owner or perhaps the contractor, can apply to the Court to have money paid into Court.  The money in Court becomes the security for the Lien, in place of the land.  The general rule is that the amount to be paid into Court will be the amount claimed in the Claim for Lien, plus an additional amount to protect the lien claimant for some costs of the litigation.  Thereafter, the owner can deal with the land as if there was never a Claim for Lien registered against same. 


If the preserved lien remains on title, then we would issue the Statement of Claim, issue the Certificate of Action and register the Certificate on title.  However, if the preserved lien has been vacated from title by money being paid into Court, we would issue the Statement of Claim, and not proceed with the Certificate of Action. 


Another aspect to consider is that construction lien actions are a type of class action.  If, for example, you and another person both supplied to the same contractor, then you are both looking to the same holdback from the owner, and the same ultimate remedy of selling the land.  Think of being in the same group along the same branch.  Because you are not to have a particular advantage or priority over that other supplier, the Court will most likely require that you and the other supplier have your trials heard at the same time.  There are both benefits and detriments to this scenario.

Prompt Payment


The new Construction Act has implemented a procedure for “prompt payment”, which did not previously exist. 


The start of this process is the submission of a “proper invoice”.  The term is defined by the Act.  In default of a submission of a proper invoice, the obligation for prompt payment is not triggered.  It remains to be seen whether the Courts will enforce this concept strictly, or provide relief where there is professed compliance (being a term which leads to discretion of the Court and a bit of uncertainty in the application).


Absent an agreement to the contrary, the proper invoice must be submitted on a monthly basis.


Once the owner receives a proper invoice from a contractor, the owner must make payment within 28 days.  Once received, the contractor then has 7 days to make the payment due to a sub-contractor.  The process continues down the line.


The owner may refuse to pay some, or all of, the invoice.  However, that refusal must be made within 14 days of receipt of the invoice, plus specify the amount being refused and the detailed reason for the refusal.  Presumably, this triggers the right for a contractor to respond and deal with the issue as alleged by the owner.  Admittedly, not all reasons are readily accepted by the intended recipient.


If the contractor receives payment in full, then each sub-trade is required to be paid, in full, within 7 days.


If the contractor receives partial payment, or no payment, then contractor can avoid some payment to the sub-contractors, provided the contractor also provide various information and documentation to the sub-contractor.



New to the Construction Act is an adjudication procedure which relates to construction agreements created after October 1, 2019.  Keep in mind the transition provisions to determine if you fall within that category.


As with the holdback obligations, the parties are not allowed to contract out of adjudication.  However, the parties may create their own process, so long as it does not contradict the process set forth in the Act.  In other words, you can fine tune and enhance, but not replace the overall process.

It is relevant to appreciate what may be submitted to adjudication.  Some examples, are

- the value of the services provided;

- payment to be made under the contract or change order;

- whether an item is or is not a proper change in scope of supply.


The goal is to quickly submit the matter to an independent adjudicator, receive a result, and keep the construction project moving forward, which is why the process is entitled “Construction Dispute Interim Adjudication”.  This can be valuable for a major or long term project.  The process does not apply to a project which has been completed, though there is nothing to prevent the parties to voluntarily agree to arbitration after the completion.  Nor is there anything to prevent the parties from voluntarily agreeing to expand the scope of topics for an adjudicator.


If, for example, the adjudicator finds that an amount is payable to a party, then that payment is to be made within 10 days after the decision is received by the parties.


Failure to make the payment found due by the adjudicator entitles a party to stop working at the project until the amount is paid.  If there is a work stoppage, then the amount to be paid might be increased by the costs incurred as a result of the stoppage (such as the mobilization costs in leaving and retuning to the project).


With a favourable result in the adjudication, and the non-payment by the owner, the contractor has the legitimate right to stop work.  This is a powerful tool as all too often, the contractor is alleged to have wrongfully abandoned the project.  All too often time consuming and expensive litigation evolves from the debate as to whether a contractor was terminated from the project as opposed to abandoned the project.


The adjudication is initiated by one party sending notice to the other party.  The notice must contain certain information, such as the nature of the dispute and the relief sought.  There are limits on who may be an adjudicator, and rules as to how the specific adjudicator may be selected.  The party who initiated the process must deliver related documents with five days of the appointment of the adjudicator.  The adjudicator must make a determination with 30 days of the appointment unless the time period is extended as permitted by the Act.


The award of the adjudicator is enforceable through the Court.  As with all procedures through the Court, the enforcement means additional time and costs.

While the decision of the adjudicator is binding upon the parties, there is always the second opportunity to have the merits of the matter heard by the Court.  Hence the process being labelled “interim”.


The Construction Action


Once the action is commenced, the Statement of Claim is served upon the Defendants, who then have a short time to deliver their Defence. 


If the lands are in Toronto, it is common that a Judge will refer the action to a Master of the Ontario Superior Court of Justice.  Masters are judicial officers who have expertise in managing and conducting construction lien trials.  If the lands are outside of Toronto, then the action will probably remain before a Judge (though the use of Masters has expanded). 


If the amount in issue is within the monetary jurisdiction of the Small Claims Court, a Judge can refer the action to that Court. 


Regardless of where the lands are situate, a Judge can refer the lien action to a private individual who can adjudicate the action.  Depending on the issues involved, and the complexity of the case, it may be a great deal of benefit to retain a private individual.  One drawback is that the costs of this private individual must be borne by the parties in some agreed upon manner.  Properly organized, the private adjudicator can save total costs and greatly reduce the time for trial. 


Next, we would consider asking the Court for permission to conduct certain procedures which would be common in a regular civil action.  Often, these include the exchange of documents belonging to each party, and an opportunity to examine the other parties as to their position.  The goals are to gather the information required to support your case, learn about the case of the opposing side, and try to narrow the issues between the parties.  Another goal is to not spend hours conducting needless or expensive steps.  Throughout, a cost benefit analysis is always undertaken with the goal of maximizing your net recovery. 


One useful document which is exchanged is referred to as the Scott Schedule.  It is often used where there are numerous changes in the scope of work and various allegations of deficiencies.


The lien claimant would assemble a Scott Schedule listing each change in scope of work along with some information as to why the change was made and then the price of the change.  The responding party would then respond with their position on each item and what they believe ought to be the price to be charged. 


Generally, the Schedule does not list the evidence on how the party wants to prove their position.  However, what is very useful to each party, and their counsel, is to create a second copy of the Schedule wherein they list the evidence they want to bring forth.


If there are allegations that the work or material was defective, the Scott Schedule will list the deficiencies, the position of the parties as to the deficiencies, the amounts sought in respect of those deficiencies.  Again, a second schedule can be assembled for counsel which lists the evidence. 


The Scott Schedule(s) will be filed as part of the trial material.  As the trial proceeds, the Judge or Master will use the Scott Schedule to assist and record the decision on each item listed therein.


The Scott Schedule is a great tool to isolate the individual items and force each party to focus on the item and the evidence.  The Schedule works equally well for major items and minor items.  Though easy to list minor items, we must remain economic and appreciate how much time and cost should be invested in each item.


Along the way, the parties may meet for a settlement conference.  In some counties, this will be done before a judicial officer.  In other counties, this is done privately by the parties.  In reality, good counsel should always be exploring settlement possibilities.  The settlement conference is usually informal and gives the parties an opportunity to resolve, or at least reduce, the outstanding issues.  Once completed, the action is then ready for a pre-trial conference. 


Prior to any trial there will be a pre-trial conference.  Outside of Toronto, it will typically be held before a Judge.  In Toronto, it will typically be held before a Master, and usually the same Master who hears the actual trial.  Again, there is an effort to resolve or reduce the outstanding issues.  As well, there will be discussion and resolution on the expected length of the trial, the date of the trial, and any particular procedures or problems which might affect the trial. 


The Construction Lien Trial

The lien trial is quite similar to any other civil trial.  Depending on the parties involved, the particular process may be altered based upon the prior pre-trial or settlement conference.  The goal of a contractor or sub-contractor is to prove the value of the services and materials supplied, and to establish compliance with all of the required time limits for preservation and perfection of the Claim for Lien.  Often, the goal of the owner, as against the contractor, or the goal of a contractor, as against the sub-contractor, is to show that the amounts are not owing, and that there has not been compliance with the Construction Act. 


Following the conclusion of the trial, the Court will pronounce judgment.  Typically, the Court will make certain findings and determinations as to the validity of the Lien, the amounts paid and to be paid, resolve issues of priorities if need be and make appropriate awards for costs of the litigation.


For more information on the Construction Lien process, please contact us.


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