Ontario's Construction Lien Act

Individuals who choose to construct their own homes as the “builder” should be aware of the special obligations created by Ontario’s Construction Lien Act.

Construction Lien Act is legislation that helps to ensure that contractors, subcontractors and workers are paid for the labour and materials supplied in the course of construction and building projects.

Generally, contractors who do not receive payment for their work have 45 days to register a lien against the property. They are then required to initiate a proceeding in court to sustain the lien.

If a contractor hired by a builder invokes the
Construction Lien Act, both sides would be required to file pleadings (Statements of Claim and Defence) and attend a mediation/settlement conference. If no resolution is forthcoming, a judge will decide the merits of the claim.

If a
Construction Lien Act matter arises, progress advances under a construction mortgage will likely come to a halt until the matter is resolved. This can delay a home construction project if a builder does not otherwise have access to funds to complete the work.

Construction Lien Act also imposes other obligations on property owners. For example, the Act requires that a percentage of project funds be held back until subcontractors are paid and requires that project funds not be diverted for other purposes (i.e. another construction project).

Construction Lien Act sometimes comes into play when a builder and contractor have a dispute over the quality of materials or workmanship. A builder who is not satisfied with the quality of materials or workmanship is faced with the prospect of significantly delaying their project if the contractor is not paid in accordance with the construction contract. Despite the protection afforded to contractors in the Construction Lien Act, contractors are required to carry out work using appropriate materials and workmanship.

Time-consuming and costly
Construction Lien Act litigation can be averted by ensuring that the builder and contractor execute clear and unambiguous construction contracts which provide for alternative dispute resolution in the event of a disagreement between the builder and contractor.

In considering the construction of a new home, builders must be aware that construction contracts are a special breed of contract because of the implications of the
Construction Lien Act.