In Ontario, the Construction Act outlines specific prerequisites that must be met for a party to have construction lien rights. These lien rights are designed to protect contractors, subcontractors, workers, and suppliers who have provided labor or materials to a construction project but have not been fully paid. Understanding these prerequisites is crucial for anyone involved in the construction industry, as they form the legal basis for securing payment through a lien against the property where the work was performed or the materials were supplied. Here are the key prerequisites to construction lien rights in Ontario:

1. Supply of Services or Materials

The first and foremost prerequisite is that the claimant must have supplied services or materials to a construction project. This includes a wide range of contributions, from physical construction work and materials to professional services like architectural or engineering work. The definition of services and materials is broad, encompassing most things that contribute to the improvement of the land.

2. Under a Contract or Subcontract

The services or materials must be supplied under a contract or subcontract (written or possibly verbal) with the owner of the property, the contractor, or a subcontractor. This contractual relationship is essential, as lien rights are based on the premise that the claimant has fulfilled their contractual obligations but has not received the agreed-upon compensation.

3. Improvement to the Property

The supplied services or materials must result in an improvement to the property. The Construction Act defines an improvement as any alteration, addition, or repair to the land that increases its value. This can include new constructions, renovations, and any other work that enhances the property in a tangible way.

4. Registration within Prescribed Time Limits

To enforce a construction lien, the claimant must register the lien against the title of the property within strict time limits. The lien must be preserved by registering it within 60 days after the completion or abandonment of the project (or the last day the claimant supplied services or materials). Following preservation, the lien must be perfected by commencing a legal action and registering a certificate of action within 90 days from the last day on which the lien could have been preserved.

5. Proper Invoice (for Prompt Payment Rules)

With the introduction of prompt payment rules in the Construction Act, a proper invoice must be submitted by the contractor or subcontractor as a prerequisite for triggering payment timelines. Although not a prerequisite for lien rights per se, it is closely related to the enforcement of payment, which lien rights aim to secure.

6. Maintenance of Trust Funds

Parties receiving payments for a project are required to hold those funds in trust for their subcontractors and suppliers. While this is more about compliance with the Act once payments are received, the proper handling of these funds can impact the overall dynamics of payment disputes and the exercise of lien rights.

Conclusion

The prerequisites for construction lien rights in Ontario are designed to provide a legal mechanism for securing payment for services or materials provided to improve a property. By fulfilling these requirements, contractors, subcontractors, and suppliers can protect their financial interests and ensure compensation for their contributions to a construction project. It’s important for all parties involved in the construction industry to be aware of these prerequisites and to carefully manage their contracts and documentation to maintain their lien rights.

Please note these materials have been prepared for general information purposes only and do not constitute legal advice. Readers are advised to seek legal advice by contacting Frank Feldman* regarding any specific legal issues.