The purpose of a construction lien is to provide statutory protections to contractors and subcontractors for the services and materials they supply to subject properties. That being said – these protections are not cheap. The preliminary steps of preserving and perfecting a construction lien can run a claimant anywhere from $5,000.00 to $10,000.00 in legal fees alone. Needless to say, these expenses may deter smaller claimants from accessing their lien rights. In order to address these costs and allow “Access to Justice,” the Construction Act affords specific remedies to allow smaller lien claimants to either assign, piggy-back, or bundle up their lien.
Assignment of a Lien
Under Section 73 of the Construction Act, the rights of a person having a lien may be assigned to another party. This means that, where multiple subcontractors intend to lien the property, those subcontractors with smaller amounts of liens have the option of selling their liens rights to subcontractors with larger amounts outstanding. Since the latter would either way proceed with enforcing lien rights, it is often economic for the former to sell their lien rights, even if for a portion of the amounts owed.
Assignment, however, becomes tricky where a subcontract assigns a lien to its general contractor. For example, in the recent Great Northern Insulation Services Ltd. v. King Road Paving and Landscaping Inc. case, the Divisional Court limited the effectiveness of assignments of liens. Namely, in Great Northern, Webdensco, a subcontractor, assigned its lien to its general contractor, King Road. The issue was whether King Road’s obligation to distribute any deemed trust monies to its other subcontractor, Great Northern, survived the assignment and whether the trust attached to the funds received by King Road on behalf of Webdensco’s assigned lien. The Divisional Court, in a unanimous decision, held that monies received on account of an assigned lien were still impressed with trust obligations.[1] While this case is currently at the Ontario Court of Appeal for review, the present implication could prevent certain claimants from taking the risk in purchasing assigned liens.
Perfection by way of Sheltering
Claimants with smaller lien amounts may also elect to perfect their liens by way of sheltering. Pursuant to Section 36(4) of the Construction Act, a preserved lien may become perfected under a lien perfected by another lien claimant, where that lien is in respect of the same improvement.[2] Sheltering effectively allows smaller lien claimants to piggy-back throughout the enforcement proceedings. It also grants participatory rights to claimants without them incurring the same costs involved in enforcing a lien. The downside, however, is that claimants who perfect by way of sheltering often have limited to zero control over the proceeding and are at the mercy of the carrying claimant.
Uniting in One Claim for Lien
Finally, the Construction Act contains one provision that many claimants are unaware of – namely, Section 34(8). This provision allows any number of persons having liens upon the same premises may unite in a claim for lien. What does this mean in practice? As previously discussed, in order for a claimant to preserve their claim for lien, the said claimant must swear an Affidavit of verification. Section 34(8) allows multiple lien claimants to be included in one Affidavit of Verification, which would subsequently be preserved in a total sum owing to each individual claimant.[3] The only caveat is that the person ultimately signing the Affidavit of Verification must act as agent for all other lien claimants.[4] Particularly, this Section benefits claimants such as workers and labourers who would otherwise be forced to make nominal claims.[5]
This section also has other benefits: suppose a contractor operates through multiple entities business – one for landscaping, the other for paving and concrete work. Although that contractor may have two separate contracts with the owner through the two separate entities, the same contractor would ultimately receive payment from the same payer. As there are two separate legal entities, they make up two separate claimants with two separate contracts – meaning each must preserve and perfect its own lien. Section 34(8) bypasses this issue by combining these liens so that the two legal claimants would not need to separately lien for what may otherwise two nominal amounts.
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at dan@fridmar.com .
[1] 2019 ONSC 3671 (Ont. Div. Ct.) at paras. 29-39.
[2] Construction Act, R.S.O. 1990, c. C.30, s. 36(4)(1).
[3] Wabco Standard Trane Inc. v. Inter Wide Mechanical & Contracting Ltd. (1998), 1998 CarswellOnt 794, 77 A.C.W.S. (3d) 485, at para. 44 [Wabco] (Ont. Sup. Ct.).
[4] Ibid.
[5] I.B.E.W. Trust Fund, Local 353 v. 779857 Ontario Inc. (2004), 2004 CarswellOnt 2528, 160 A.C.W.S. (3d) 25 (Ont. Sup. Ct.).
