Property owners beware: Construction Liens explained

What is a Construction Lien?

A construction lien is a claim that can be made against a property when a contractor or a subcontractor has not received payment for their work that has improved the property. This is a legal tool with the purpose of protecting contractors from the risk of not being paid. The value of a construction lien will be equivalent to the cost of the materials or services used to improve the property. The contractor or subcontractor who places a construction lien on a property is referred to as the lien claimant.

Why should you care?

If you are unhappy with work that has been done by a contractor, the answer is not simply refusing to pay. There are consequences to this. A lien registered on your property is something to take seriously as it can cause many disruptions on the equity you have in the property. A construction lien is registered against the title of the property therefore the lien claimant can make a claim on the property. This means that the lien claimant can seek court approval to sell the property to claim the debt. It also can be an issue for the property owner when trying to buy or sell as it will come up during the due diligence process and can scare away potential opportunities.

Protect yourself - Holdbacks

Whether you’re a property owner, contractor or subcontractor a holdback gives you some security. This is an obligation to withhold 10% of the payment. All parties involved are each required to retain this 10% “holdback” until all potential liens have been satisfied, discharged or expired.

Removing a lien

Removing a construction lien can be done by way of discharging or vacating the lien. Vacating the lien simply is an exchange of security so that the lien is no longer on the title of the property but on another form of security. Thus, any claims made in court will be on the new form of security and not the property’s title.

Discharging a lien can be preferable as it permanently extinguishes the right to the lien. This can be done voluntarily or through court order. A voluntary discharge usually occurs after a settlement where the lien claimant signs a “Release”, and the release is registered on title.

Need advice regarding a construction lien or would you like to discuss the options available in your circumstances? Call us at (416) 606-5405 for a free consultation.