Lien & Mean? Mechanics’ Liens in NL

August 2, 2011

No one likes to see a lien on a project – not the owner, not the financier, not even the contractor or supplier who filed the lien. It frequently destabilizes the project as fears of non-payment lead to crews pulled or financing stalled, resulting in even greater delay and risk to the lien claimant for whom payment is already late. Most in the industry avoid liens at all cost, but too often that cost falls on those who the lien was intended to protect. By clear communication and compliance with the legislation from the outset, fallout can be contained without sacrificing the underlying intention to protect people at risk of never being paid for their work and materials.

Unlike a “personal” action which gives successful claimants rights against the opposing party, a lien pursuant to the Mechanics’ Lien Act immediately stakes an interest in the real property that has been improved by the unpaid work or materials. Quite a phenomenon in an “innocent-until-proven-guilty” based legal system: rather than (a) make a claim, (b) prove the claim and (c) enforce the judgment by registering it against property, you (a) register the claim against the property and (b) then prove it. It’s more like “I-say-you’re-guilty-so-I’ll-hold-you-until-I-can-demonstrate-it” kind of approach.

The process requires positive action by the claimant; there is a general right to a lien for the value of work in or on, or materials placed on land, but to enforce that right a lien claim must be filed and the claimant must comply with the Act. Generally speaking, lien claims must be filed within 30 days of completion or abandonment or from the last supply of work or materials. 90 days from completion, abandonment or last supply, the lien claim stops existing, unless in the interim the claimant has started legal action and registered a certificate in the Mechanics’ Lien Registry, at the Registry of Deeds. Beyond the technical requirements in the Act, the claimant must be able to demonstrate that the supply was to the property, and not just to the owner, for the lien to be enforceable against the property. All too often lien claims are over before they begin because they are not filed on time or claimants cannot demonstrate that their materials were placed on the specific land identified in the lien.

Because of the vulnerability of all parties, the unpaid claimant and the owner of a “liened” project alike, the process is intended to be faster than regular litigation. Nonetheless, it can still bring down a project, so there are options to lift the lien until the issues behind the non-payment can be judged. If the party primarily responsible for payment has maintained the holdback obligations, they may be able to pay the holdback into court and wash their hands of the matter, leaving the disputing parties in the contractor-subcontractor-supplier chain to fight over entitlement. Alternatively, there may be an option to post security in court, to replace the interest that the lien has in the real property with alternate security: a lien bond, a letter of credit or a payment into court. The key is that no one is prejudiced by the alternate security and the project can continue until the issue is ruled on or otherwise resolved.

Apart from the Crown, the Mechanics’ Lien Act applies to everyone in the province. While you can “contract out” of the Act, you can only waive your rights and not the rights of others. An owner and contractor might agree not to be bound, but that does not mean that others forfeit the right to a lien or a claim against a holdback. To minimize potential exposure, it is generally better to work with rather than against the Act: be clear from the outset that that you are aware of your legal rights and obligations – that holdback obligations with be met and that a lien will be filed if circumstances oblige it, not to be damaging, but to preserve rights and interests. Should an issue arise, you’ll be happy you did.

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