Entrepreneurs in the construction industry can benefit from the Construction Lien to secure payment. When cautious contractors or subcontractors notice they are not getting paid in a timely manner, they can file a lien against the property which has been improved by their services. The owner of the property (or “improvement” as it is known in the Construction Lien Act) is then pressured to get rid of the lien if they wish to finance or sell the property.
Sometimes, the owner will simply pay the person claiming the lien, also known as the lien claimant. This is ideal for any lien claimant wishing to get paid for their work. Sometimes, for whatever reason, the owner refuses to pay. Maybe this is a litigious owner who is unhappy with the work done, and who is not pressured to get rid of the lien because they do not wish to finance or sell the property. In these cases, the lien claimant may find themselves in a costly and protracted litigation process to recover their funds.
As time goes on, and months or even years pass, the contentious issues fail to resolve, and circumstances tend to change. Suddenly, the owner needs to mortgage or sell the property, but will be unable to do either because of the lien. The owner in such a situation may choose to vacate the lien.
The term vacate tends to scare some contractors and subcontractors in the industry, as they perceive a vacated lien as a loss of their security! Such is not the case. It is important to differentiate a vacated lien from a discharged lien.
To illustrate by example, if the cautious contractor or subcontractor preserved and perfected his lien according to the Construction Lien Act, and there are no reasons to doubt the validity of the lien, then the owner may vacate the lien by making a payment into Court under s. 44 Construction Lien Act.
If the owner vacates the lien by making a payment into Court, then the improvement is no longer charged with the lien. An amount corresponding to the value of the lien, and then some extra funds as security for costs, are paid to the Superior Court of Justice. When this happens, the lien claimant’s lien is transferred from the property onto the funds held in Court. The owner may then mortgage or sell the property, and the lien claimant still has a lien on the funds being held in Court. As such, should the owner not have the funds to pay, or worse file for bankruptcy, the lien claimant will have access to those funds being held by the Court.
In contrast, when a lien is discharged, it is gone forever, along with any rights or security associated with a lien. There are many reasons why a lien may get discharged, but the main reason is usually that the lien is invalid due to the lien claimant not preserving or perfecting their lien on time.
The point is the following: a lien is a security for payment, and nothing else. It ensures that the lien claimant gets paid for their work by imposing a charge worth the value of materials or services supplied on improving the property. If the lien is vacated by making a payment into Court, then the lien claimant’s security transfers from the actual property onto the funds held by the Court.
The professional, experienced and cost-effective lawyers at Ottawa’s Vice & Hunter LLP are experienced in construction liens. Contact us and we would be happy to discuss your case and how we can be of service to you.