Construction Liens — Certificates of Pending Litigation
At least two things can tie up title to a person’s property—a lien and a Certificate of Pending Litigation. These two legal devices are designed to protect people who may have claims against a piece of property. Their claim might arise because they did work on the property and want to get paid, or they improved it somehow and they actually want the property itself.
Construction liens are designed to give contractors and subcontractors security for work they have done but have not been paid for yet. Contractors (with whom you have a contract) and subcontractors (with whom you may not have a contract) can both put a lien on your property if they have done work to improve it. The lien is a notice to anyone who might be interested in the property. The lien is essentially saying, “Don’t buy this property! Don’t refinance this property! If you do, you will do so subject to my claim.”
A homeowner whose property has a lien on it runs the risk of having to pay the subcontractors who have not been paid by the contractor. The way to ensure that this does not happen is to hold back a percentage of the total value of the contract for work that was being done as protection for unpaid contractors and subcontractors. Hold back amounts are set by provincial law and range from 7 - 20%, depending on the province. The set percentage is then held for a fixed period of thirty to sixty days, again, depending on the province. The period runs from the day the work is substantially complete. After that period, the holdback money can be paid out or released to the contractor.
If you are going to hire contractors to do work, find out how much your provincial holdback amount is and how long you must hold it back. If a lien is registered, don’t ignore it. Get a lawyer involved immediately, as it could affect your mortgage or your ability to refinance the property. Written agreements with contractors for renovations are an absolute must, and the written contract should deal with the requirement for holdbacks and obligations to subcontractors.
A Certificate of Pending Litigation is slightly different from a construction lien. Pending litigation notices do not just mean that the person who has registered it claims to have improved the property. The Certificate is designed to tell the world that the person claims the property itself. Once the Certificate of Pending Litigation is registered, no one will buy or finance the property until they have determined why the Certificate was registered. Again, you need a lawyer to get rid of the Certificate, and this should be dealt with as soon as possible. A situation in which a Certificate of Pending Litigation might be registered could involve, for example, a person who enters into an Agreement of Purchase and Sale to sell property to a person and then refuses to close that deal and instead, sells it to another person. The first purchaser of the property may want to enforce the Agreement of Purchase and Sale that they entered into with the vendor. They would then register it to ensure that the property cannot be sold to anyone else.
The bottom line is that construction liens and Certificates of Pending Litigation can be registered on title in a number of circumstances. Being proactive is certainly the best strategy for dealing with this type of issue.