Legal Blog

Lien Gone

The Construction Lien Act creates lien rights and defines when those rights expire. It defines holdback duties of mortgagees, owners, generals, subs, subsubs, etc. A claimant’s lien rights extend only to the holdback requirements of a payor. What happens when, looking at the lien preservation rules in a vacuum, a sub may still have lien rights, but the general has lost its lien rights? Does the sub lose its lien rights as a result? This was the issue in Clarkway Construction Ltd. v. 2247129 Ontario Inc., a 2016 decision of a Master of the Ontario Superior Court of Justice.

Rationale

Although we have set out the theory of the Act in a number of newsletters, it bears repeating. The Master explained it succinctly as follows:

The scheme of the Act sets up a pyramid or ladder structure for contractors and subcontractors to recover payment for services and materials supplied to improve a property. The theory underlying the Act is that supplying services and materials to improve land is akin to advancing credit. Once the services or materials have been supplied the owner enjoys the benefit of what was supplied. Therefore the supplier of the services and materials is entitled to security in the form of a lien claim for having advanced credit to the owner. The Act creates a ladder or pyramid, with the owner at the top, the general contractor under the owner and subcontractors under the general contractor. The lien claim and holdback rights and obligations flow up the ladder or pyramid to the owner.

Facts

The general indicated on January 25 that it would no longer perform any work on the project. The owner accepted that contract termination on February 9 and advised the general to remove all of its equipment from the project. The general may have done so, but the general’s sub did not remove its equipment. Accordingly, on April 14 the owner wrote directly to the sub requesting it to remove its equipment. The general’s lien rights expired on the 46th day after either January 25 or February 9. The sub registered a lien within 45 days of receiving the April 14 notice from the owner, but not within 45 days from either January 25 or February 9.

If the general had not lost its lien rights, there would have been no question that the sub retained its lien rights for 45 days after notice to remove its equipment and, possibly, even 45 days after it actually removed its equipment. Were the sub’s lien rights truncated because of the general’s lost lien rights?

Decision

The Master held that a sub is in no better position than a general and, accordingly, the time to preserve a lien, under these circumstances, starts to run when the prime contract is abandoned or terminated (i.e. the subcontract ends when the prime contract ends). The Master did not feel that this caused a hardship on the sub because, she noted, the sub had a duty to keep itself informed as to the status of the prime contract, particularly as the arrears on the equipment rental started to mount.

The Master discharged the sub’s lien.
Image courtesy of juanarreo.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.