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How vacating liens just doubled in price

By Sven T. Hombach, Fillmore Riley LLP

Construction liens are an unfortunate reality of virtually every large construction project, and many smaller ones as well. Designed to ensure that building trades are protected from non-payment, they have a history in Canada that dates back more than 100 years. Site owners who have ever had to deal with an insolvent contractor are well familiar with paying twice - once to the contractor, and once more to the unpaid trades who filed liens. However, in light of a recent Manitoba Court of Appeal decision, contractors are now facing that issue as well, at least on a temporary basis.

While the rules of construction liens are complex, the concept is very simple – unpaid contractors or trades can claim a lien against the underlying land. Since the land has value, the party who claims the lien will ultimately get paid, either because the owner has to remove the lien and pay out the party who filed it, or because the land is sold and the party who filed the lien is paid out of the proceeds of sale.

Much less well known than construction liens are construction trusts, despite the fact that virtually every jurisdiction in Canada provides for them. The statutory construction trust provisions written into lien legislation across Canada stipulate that where a site owner or contractor receives monies for the purpose of construction on a site, those funds constitute a trust in favour of those parties to whom money is owed for work on the site.

For example, for a site owner, the construction trust provisions mean that where money is advanced under a construction mortgage, the owner cannot use that money for any purposes until the general contractor has been paid. For a general contractor, it means that money received from the owner under contract cannot be used until the subtrades have been paid. Lien statutes provide for fines and jail time where these trust provisions are breached. While the construction trust provisions are frequently treated as a lien’s “poor cousin,” they can be quite useful, primarily because they apply even if a party missed the deadline for register a claim for lien.

Once a claim for lien has been registered, parties frequently find themselves in a scramble to remove (or “vacate”) the lien from title for a variety of reasons. For instance, a bank may refuse to advance additional money under a construction mortgage until the lien is removed. Conversely, a contractor may have a “no lien” clause in its contract and face pressure from the site owner to have the lien vacated. Fortunately, construction lien litigation makes it relatively easy to do so, generally requiring the full amount of the claim for lien, plus some provision for costs, to be paid into court, either in cash or by way of a lien bond obtained from a financial institution. The parties can then take their time to fight the merits of the claim out in court or negotiate a settlement. Lien bonds are particularly popular in cases where paying the full amount into court would cause a serious cash flow problem. Based on the recent Manitoba Court of Appeal case of Olson (Stuart) Dominion Construction Ltd. v. Structal Heavy Steel [2014 MBCA 8], such cash flow issues will likely become much more frequent.

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Piling Canada is the premier national voice for the Canadian deep foundation construction industry. Each issue is dedicated to providing readers with current and informative editorial, including project updates, company profiles, technological advancements, safety news, environmental information, HR advice, pertinent legal issues and more.