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Inch Hammmond Business Lawyers
Inch Hammond Business Lawyers

The Basics of a Construction Lien

Book titled 'Construction Law' with construction tools nearby

As most every contractor will be aware of, but not enough homeowners and tenants will know, when a contractor makes improvements to a property they may be entitled to a “lien” on that property, effectively giving a contractor a security interest in the property as a sort of collateral.

While the lien technically exists once the work starts, it is important for both contractors and owners/tenants to be aware that several steps must be taken under the Construction Act in order for that lien to be registered, valid, and ultimately enforceable. In legal terms, this is called “preserving” and “perfecting”.

Claim for lien

Generally speaking, a lien that has arisen by virtue of improvements having been made to a property will expire (having never been enforceable at any point) unless a Claim for Lien is registered by the contractor within 60 days from the contract being completed or terminated.

Legal action

This is not the end of the matter, however. The lien will still expire even though a Claim for Lien has been registered, unless within 90 days after the last day that the Claim for Lien could have been registered, the contractor commences legal action. It is at that point that a lien becomes enforceable, and it will only expire once a trial date has been set or after two full years have passed from commencement of the action, whichever comes first.

Being certain of the details

Contractors and even their lawyers must not only be certain of the time periods mentioned above, but also of the exact property being improved (down to a unit number, for example) and who exactly is the owner or tenant ordering the work. For the purposes of a lien under the Construction Act, the “owner” is the one who orders the work. This can oftentimes be a tenant, particularly in commercial settings. If a tenant ordered the work, it is crucial that they be identified as such in the Claim for Lien, and contractors should note that in such instances the lien interest will usually only be enforceable against the tenant’s leasehold. Further, an unpaid subcontractor will have to identify the general contractor who ordered that work, but also the tenant or owner who ordered the work by the general contractor. The lien still attaches to the tenant or owner’s interest.

The Construction Act is comprehensive and robust, with many potential benefits and pitfalls extending far beyond what has been covered here. It is important to consult a lawyer with experience in construction law to help you through this process, and potentially other matters such as holdbacks and payment of proper invoices. Home and business owners should also consult a lawyer when faced with a potential lien so as to ensure that they are protected and that the Construction Act has been properly observed. In all cases, owners and tenants should also remember that a contractor can still commence legal action for payment even where they failed to maintain an enforceable lien.

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