How Owners and Developers Can Contract Out of General Lien Provisions

Where an owner enters into a single contract for work to be done on multiple properties that it owns, a person supplying services or materials under that contract, or a subcontract thereunder, that is unpaid can choose to register a “general lien” under the Construction Lien Act (the “CLA”) against all of the properties subject to the contract for the total price of the services and materials it supplied, rather than registering separate liens against each parcel for discrete amounts.

This is a valuable remedy for sub-trades and suppliers, particularly those that perform work in sub-divisions, but it can have drastic consequences for owners and developers, because it means that a contract dispute between a contractor and a subcontractor can limit their ability to sell or mortgage any of the subject properties.

In a decision that protects the interests of owners and developers, the Ontario Court of Appeal recently confirmed that a clause in a general contract limiting the rights of contractors to assert a general lien will apply equally to its subcontractors.

Contracting out of the CLA’s general lien provisions

In Ontario, the CLA permits, in certain circumstances, parties to contract out of the general lien provisions. Although a contractor or sub-contractor supplying services or materials to multiple properties of an owner ordinarily has the right to assert a lien against all of the subject properties, for the total amount owing, under the CLA this right can be altered by a clause in the prime contract providing that liens will arise and expire on a lot-by-lot basis (s.20).

Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd

In this action, the prime contract between the general contractor and two property owners for services to multiples properties contained such a provision. A subcontractor, Yorkwest Plumbing Supply Inc., claiming it was owed for materials that had been supplied to the now bankrupt general contractor, had registered a general lien against both owners and all properties. The owners brought a motion for summary judgment, arguing that the subcontractor’s lien was defective in light of the terms of the prime contract.

The Ontario Court of Appeal confirmed that s. 20 of the Act applies to all subcontracts under a given prime contract: if the prime contract precludes the contractor’s right to assert a general lien, subcontractors will be precluded from doing so as well. Accordingly, before asserting a general lien, subcontractors must take steps to ascertain if the prime contract has limited their right to do so.

There is protection for subcontractors in the CLA, which requires owners and contractors to provide subcontractors, confirmation as to whether the prime contract provides that liens arise and expire on a lot-by-lot basis, along with other crucial information, upon written request (s.39). Making a proper and timely demand for information under the CLA when problems arise is often crucial to the ability of a subcontractor (or contractor) to collect on a problem project.

Knowledgeable construction law services for property developers in Kitchener Waterloo

At Duncan, Linton LLP, our full-service construction law practice provides expert legal advice at every stage of your project. We have an in-depth understanding of the contract negotiation and drafting process, and can work with you to mitigate risk and protect your interests.

If you have questions about any legal issues arising in a construction project, one of our construction lawyers can assist. To make an appointment, contact us online, or call 519-886-3340.