By Rachel Puma
Robins Appleby
If a contractor is not paid within a certain amount of time, a contractor can generally register a construction lien against title to a property, as security for the contractor’s purported the improvement of the property and their entitlement to payment.
The Ontario Construction Act sets out specific timelines for the “preservation” and “perfection” of liens, which must be strictly complied with. For simplicity’s sake, “preservation” generally meaning registration of the lien within the required time period, and “perfection” generally meaning that the lien claimant has commenced a specific action with respect to the lien, again, within the specified time period.
A lien on a property will effectively prohibit an owner from dealing with the property, because the lien is attaches to an interest in the property itself. Accordingly, third parties will almost always refuse to take conveyances, mortgages or other dealings with a property subject to a lien.
Furthermore, a lien on title is often a possible event of default under loan agreements and development agreements, and will often constitute a default if the lien is not removed within a certain time period.
Whether you are trying to deal with a property that is subject to a lien, or you are trying to avoid defaulting under certain agreements, you will generally want the lien off title. One of the most efficient ways to have the lien removed from title is to “vacate” the lien.
Process to vacate a lien
Pursuant to Section 44 of the Construction Act, the party seeking to vacate the lien may post security with the Superior Court of Justice equal to the sum of: (i) the full amount of the lien, plus (ii) 25 per cent of the lien amount (up to $250,000) as security for costs.
Any party can bring a motion to vacate a lien, it does not need to be a party to the construction contract. On large projects, a lien may result from a general contractor failing to pay a subcontractor. In that case, the owner of the lands would likely not be a party to that contract, but is still entitled to bring the motion to vacate the lien.
Generally, a motion to vacate a lien can be brought without notice to the lien claimant, assuming that the moving party is paying the entire amount claimed plus 25 per cent into court. It is important to remember that paying such amount into court is not acceptance or agreement of the amount being claimed, and the amount being claimed can still be disputed by the moving party.
Assuming the lien has not been perfected, the motion can be heard in any jurisdiction in Ontario. However, if a lien has been perfected, the motion must be heard by the jurisdiction in which the action has been commenced, typically being the city in which the property is situated.
Once the Order to vacate the lien has been obtained by the Court (after a successful motion), security is paid into Court by the applicant, which can be in the form of cash, an irrevocable letter of credit, or a lien bond. Upon the Court’s receipt of the funds, the applicant can cause the lien to be removed from title.
Of course, vacating the lien does not resolve the underlying dispute between the lien claimant and the contracting party, which must be heard or settled before the funds in court can be released to the appropriate party. However, with the lien removed from title, the owner of the lands may still deal with its land, including selling the land or parts thereof to purchasers, even though the underling dispute is ongoing.
Timing
The timing of this process can vary substantially, depending on the urgency of the lien being vacated, the court’s capacity to deal with the matter, and the lawyer’s expertise.
Anecdotally, recently this author’s office dealt with a lien which was registered against a subdivision in the process of selling lots, in which the next sale was scheduled to close less than one week later. Going through the Toronto Superior Court of Justice, we were able to electronically file a without-notice motion the next business day, and the Court was able to expedite the process for issuing the Order and the eventual Receipt of security so that the lien was vacated and removed from title within three business days.
This is in stark contrast with a similar recent situation in which the general contractor’s counsel brought a motion to vacate a lien in Barrie, which was not able to be heard for over two weeks and which the Order was not issued for another week after that, before security could be paid and the lien could be vacated and removed from title.
These are not absolute timelines, and the content of this article is intended to provide a general guide to the process of vacating a construction lien in Ontario. However, specialist advice should be sought for specific matters, particularly given the strict timelines and precise technical requirements relating to construction liens.
Rachel Puma is Partner at Robins Appleby. robinsappleby.com
