Condominiums and Construction Liens

On July 1st, 2018, substantial amendments to the Construction Lien Act (now the Construction Act) came into effect. Most of those amendments are generally more of interest to condominium developers than to unit owners or condominiums. There is one change, though, that is important for unit owners and condominiums: the Act now sets out the process for registering a construction lien against common elements, and describes how unit owners can get liens removed from title to their unit.

Former Process

Previously, the Act did not address how liens were to be dealt with when it came to condominium corporations.  With this gap in the legislation, it was up to developers, contractors, and subcontractors (and their lawyers) to figure out what to do when construction invoices for a condominium project were unpaid and those invoices related to the common elements of a condominium. In some cases, the lien claimant would randomly select certain units within a condominium against which the lien would be registered; in other situations, the lien claimant would register the lien against all units. There was disagreement between industry professionals and lawyers over what, exactly, was the proper process.

Whichever approach was taken, the problem for unit owners was that if a unit owner wanted to sell or refinance their unit, they could not do so until the lien had been removed from title to their particular unit. Without guidance from the Construction Lien Act, the question of how to solve this problem was also up for debate. Over time, the generally accepted approach became that the unit owner and lien claimant would agree that the unit owner could pay out a portion of the lien based on that unit owner’s share of the common elements, and the lien claimant would then discharge the lien against that unit owner’s unit. This was usually seen as the most reasonable and fair solution to the problem, but there was no legal requirement for this approach to be taken. This meant that it depended on the agreement of both parties in order to succeed.

New Process

In order for a lien claimant to keep their lien in good standing, the lien claimant must (among other steps) bring a court action seeking to enforce the lien and recover the payments that the claimant says are owing to it. This is called preserving the lien.

As part of the recent amendments, section 34 of the Construction Act (the section that sets out how to preserve liens) now includes a provision that specifically address construction liens relating to common elements of a condominium corporation.

Section 34(9), the new provision, states that a lien claimant must provide notice of the lien to the condominium corporation and to each unit owner within the corporation (or each POTL owner, for common elements corporations). This is important because previously unit owners often did not receive notice of a construction lien, and so did not discover that the lien existed until they went to sell their unit or refinance their mortgage.

Section 44 of the Act, which deals with vacating (i.e. discharging) liens, now includes provisions that set out how a unit owner may vacate a construction lien placed against their unit. Subsections 44(2.1) and (2.2) state that if a lien is placed against a unit, the unit owner (or POTL owner) can make a motion to the court asking that the lien be vacated, in exchange for paying into court a portion of the lien amount that is equal to the portion of that owner’s ownership in the common elements. E.g. if a unit owner has a 2.5% share of the common elements, then the unit owner would have to pay 2.5% of the lien amount into court in order for the lien to be vacated. The motion to the court would be made under the same court file as the action for the lien.

While these new provisions do not specifically address whether a lien claimant is required to lien all of the units in a condominium corporation or can still select just some, the fact that the lien claimant must provide notice to all unit owners would seem to indicate that the intention is for the lien to be registered against all units. Fortunately for unit owners, if their unit ends up with a construction lien registered against it (regardless of whether it is against all units or just some), the unit owner now has a straight-forward way of having the lien discharged, that does not need the lien claimant’s consent or agreement: pay their unit’s portion of the lien into court, and the lien can be vacated.

Once the overall legal action regarding the claim has been decided, the money in court will be paid to the lien claimant if the lien is found to have been valid, or will be returned to the unit owner if the lien was not valid.