Perfecting a Construction Lien
A company in the construction industry faces financial and security risks. In fact, when a construction company makes improvements to a property, their client may be unable or unwilling to pay them, which often leaves the company financially at risk. However, the Construction Lien Act (CLA) protects contractors by allowing them to file a lien against a property owner. A lien is a legal claim made by a contractor against a property owner that allows the former to obtain financial compensation for completed work.
The contractor must first preserve and then perfect the lien. In order to preserve the lien, the claimant must complete a registration of a claim for lien within 45 days after the construction contract ends. Furthermore, a copy of the claim for lien must be given to the property owner within the same time period. After the claimants preserve the lien, they must perfect the lien through a court procedure; this action requires the claimant to start a lawsuit and register a Certificate of Action against the owner. The perfecting of the lien must take place 45 days after the deadline to preserve the lien ends.
Once a claim for lien has been registered, the owner of the property and the contractor may approach the construction dispute in several different ways. The owner of the property may pay the full amount of the claim in addition to 25% of the claim, or the owner may negotiate with the claimant to agree on a payment that will settle the lien. The owner of the property also has the opportunity to challenge the lien in court if he or she does not think that the lien is valid.
Moreover, according to the Construction Lien Act, the owner of a property must maintain a holdback of 10% of the original construction cost until all liens against him or her have been satisfied. In contract law, a holdback requires the owner of a project to have a specific amount of money to ensure that the suppliers of work are fairly paid. The holdback provides a fund for lien claimants if they are unable to recover from being unpaid for a prolonged period of time.
As a general note, however, contractors who want to register claims for liens should know that a new legislation called Bill 142 will introduce major changes to the Construction Lien Act by 2018. The Bill’s reforms include a prompt payment regime, greater lien rights, and new rules regarding holdbacks. The prompt payment regime states that the owner of a property will only have 28 days to pay a contractor after the delivery of a proper invoice. Moreover, the time limit to register a lien will be increased from 45 days to 60 days, and the subsequent timeline to perfect a lien will be extended from 45 days to 90 days. Holdbacks will remain at 10% of the improvement cost, but the holdbacks must be paid to the claimants once the deadline to register a lien expires.
Since the courts are very particular about the information on lien claim documents, it is advised that claimants consult a lawyer to guide them through the legal process. Conduct Law is an Ottawa based business law firm with professionals who assist clients with legal processes such as commercial real estate, liens, and other related corporate and security work. If you wish to discuss further, feel free to contact Conduct Law at 613-440-4888 or write to one of our professionals at email@example.com.