Breach of Construction Contract

What is a Construction Lien?

A construction lien is a legal claim against a property by contractors, subcontractors, or suppliers who have not been paid for their work or materials. In Ontario, the Construction Act governs construction liens, providing a mechanism for contractors and suppliers to secure payment for their services by placing a lien on the property where the work was performed.

When a property owner, contractor, or subcontractor fails to make payment as agreed, it can lead to a breach of the contract and trigger the filing of a construction lien. The lien prevents the sale or transfer of the property until the dispute is resolved, ensuring that unpaid parties have legal recourse to recover what is owed to them.

Addressing a Construction Lien Breach

1. Identifying the Breach and Preparing to File a Lien

The first step in addressing a construction lien breach is identifying the breach of contract or non-payment. Contractors, subcontractors, or suppliers must act promptly when payment issues arise. In Ontario, the deadline to file a lien is 60 days from the date of the last supply of materials or services to the project. During this time, it’s essential to gather all necessary documentation, such as contracts, invoices and proof of work or materials supplied.

2. Registering the Construction Lien

To officially secure a claim against a property, the lien must be registered on the title of the property. This involves filing a Claim for Lien that includes details such as the amount owed, a description of the work or materials provided and the property details. Once the lien is registered, it becomes public record, and the property owner is notified. The lien serves as security for the unpaid amount and prevents the property from being sold or refinanced without first addressing the lien claim.

3. Serving the Notice of Lien

After the lien is registered, the claimant must serve a Notice of Lien on the property owner and, if applicable, the general contractor. This notice informs the parties that a lien has been filed against the property and outlines the amount claimed. The notice must be served within 60 days of the last supply of materials or services.

4. Negotiation and Resolution

Once the lien is filed and notice is served, there is often an opportunity to negotiate before pursuing further legal action. In many cases, parties can reach a settlement through negotiation or mediation, avoiding the need for litigation. A lawyer can assist in these negotiations to ensure that any agreement reached is legally binding and protects the claimant’s interests.

5. Commencing a Lien Action

If negotiations fail, the next step is to commence a lien action by filing a Statement of Claim in court. This must be done within 90 days of the lien registration. The claim outlines the details of the breach, the amount owed, and the relief sought. The defendant (usually the property owner or contractor) will have the opportunity to respond with a Statement of Defence.

Failure to commence a lien action within the 90-day window results in the lien expiring and the claimant losing their security interest in the property.

6. Certificate of Action

In addition to filing the Statement of Claim, the lien claimant must also register a Certificate of Action on the property title. This certificate informs anyone dealing with the property that a lien action has been commenced. The certificate must be registered within 90 days of the lien’s registration to keep the lien active.

7. Discovery

Once the lien action is initiated, the case moves to the discovery. Both parties exchange relevant documents and information related to the dispute. This may include contracts, invoices, payment records and any correspondence between the parties. Examinations for discovery, where parties are questioned under oath, may also take place. Through discovery process, both sides can evaluate the strengths and weaknesses of their case and may lead to settlement discussions.

8. Settlement Discussions and Mediation

Before proceeding to trial, many construction lien cases are resolved through settlement discussions or mediation. The discovery process often clarifies the key issues, making settlement more likely. Mediation is a voluntary process where a neutral third party helps the parties negotiate a resolution. If a settlement is reached, the terms must be recorded in an agreement that is legally binding.

9. Trial

If settlement is unsuccessful or neither of the parties initiates settlement, the case proceeds to trial. During trial, both sides present their evidence and arguments to the judge. The court will determine whether the lien is valid, the amount owed and any other relevant issues. The judge may order the sale of the property to satisfy the lien or provide other remedies.

10. Enforcement of Judgment

If the court rules in favor of the lien claimant, the next step is to enforce the judgment. This may involve selling the property to recover the amount owed, or the court may order the defendant to pay the outstanding debt directly. Enforcement actions can be complex, especially if the defendant refuses to comply with the court’s orders. A lawyer can assist with the enforcement process to ensure the claimant receives the compensation they are entitled to.

11. Release of Lien

Once the debt is paid or the dispute is otherwise resolved, the lien must be released. The claimant is responsible for registering a Release of Lien on the property title, removing the lien and clearing the title for future transactions.