As construction season in Ontario winds down, general contractors and tradespeople are finishing up projects and closing out contracts. As they finalize invoices, it’s also crucial to take steps to ensure they get paid for their hard work.
In the hustle of wrapping up jobs, knowing their rights can be the difference between contractors getting paid or getting cheated. Mike McCluskey is a commercial litigation lawyer at McKenzie Lake Lawyers in Guelph. McCluskey has spent years navigating the twists and turns of construction law and he says, “If there’s one trend I’ve seen too often, it’s contractors and tradespeople getting stiffed at the end of a project. Some property owners are starting to squirrel away cash for Christmas, and as the final invoices roll out, so do the excuses.”
It can often lead to disputes and delays over payments. McCluskey adds, “When that happens, we have contractors contacting us saying their payment is late, they want to get paid, so what can they do.” One of the best options is lien.
What is a lien?
A lien is one of the most powerful tools contractors and tradespeople have in a non-payment situation. McCluskey says, “Liens are a type of security that a contractor or subcontractor have that they can register against the title of the property where they are doing the work.”
Ontario’s Construction Act gives contractors, subcontractors, and suppliers the right to place a lien on a property if they’re not paid for their work. McCluskey says, “I have a lot of people coming to me requesting a lien on a property to secure payment without understanding what a lien is and the deadlines that must be met.”
Must act quickly
Registering a lien on a property is a legal process with very strict time limits. McCluskey says, “In Ontario, contractors have 60 days from the last day of work on site to contact a lawyer and register a lien. Many times, contractors will contact me because they haven’t been paid and want to lien. And my first question to them is, when were you last on site?”
If they were on site within the 60-day window, they can proceed with a lien. However, if they missed the deadline, they cannot register a lien. Attending the site later to sweep up nails or fix minor deficiencies will not restart the deadline clock. McCluskey says, “We can help them get paid, but I tell construction clients that they must contact me early. Once they have a sense that they will not be paid, they should give me a call.”
Liens can be effective leverage. For example, if it’s a large construction project that is subject to construction financing on a monthly or tranche basis, the money will not continue to flow in the face on liens registered on title.
How to protect yourself
A first step after discussing options with a lawyer might be a demand letter to see if that gets the payment process moving. If it’s been a few weeks since the project wrapped up McCluskey says, “Let’s get a lien on title to get the payment process moving because typically the mortgagee does not want liens on title.”
There are steps to take before reaching out to a lawyer. McCluskey suggests, “Submit an invoice payable immediately or within 7 days, because if you allow a term of 60 days, by the time you realize they won’t pay, you’re already past the lien deadline.” If a contractor asks for payment upon receipt of an invoice, they will know sooner if the customer intends to pay or not, and that’s when they want to call a lawyer.”
Last-minute squeeze
There are some property owners that try to negotiate discounts or resist paying in full when the work is done. They seemingly take the position that until they hear from a lawyer or the contractor liens or threatens a lawsuit, they will not pay the full amount owing.
McCluskey says, “It’s discouraging when you see some property owners refusing to pay for no other reason than they’re trying to negotiate a discount that isn’t warranted because the work was done properly, and then the contractor is compelled to lien or sue to get the money they’re owed.”
Protections for trades
On a construction project, the property owner must retain 10% of the value of the contract as “hold back” to ensure subcontractors get paid. If a homeowner has a $100,000 contract with a general contractor, the homeowner can only legally pay the contractor $90,000 and hold back the $10,000 balance in case a lien is registered by a tradesperson.
McCluskey stresses, “That’s why subcontractors want to ensure the lien is registered before the 60-day deadline is up. Because not only does the tradesperson get to sue the general contractor but they also get to sue the homeowner for entitlement to the holdback funds.” If the tradesperson does not lien, they can still sue the contractor, but they can’t claim the holdback funds from the homeowner.”
Litigation can be confusing
That’s where a lawyer specializing in construction law can be a game-changer because they can identify the best legal path, and if needed, file a lien or lawsuit to protect a contractor or subcontractor’s claim on a property.
Mike McCluskey has extensive experience in construction law and can guide clients through the legal process to protect their investment and ensure their hard work doesn’t go uncompensated. He says, “The best approach to take will depend on the individual’s unique situation and having the right advice can save both time and money in the long run. McCluskey says, “Speaking to a lawyer who is well versed in the Construction Act is important, whether you’re a general contractor, subcontractor, or owner who should be aware of your obligations. There is a lot of misinformation out there.”
The message to those working in the construction industry; take a moment to ensure your investment is protected. Understanding your payment rights can be the difference between a profitable project and an unpaid bill.
Contact Mike McCluskey at (519) 826-4333 or via email: [email protected]
