Reduce Security Posted into Court to Vacate a Lien by Making Section 28 Payments
Key takeaway
If payments are made in accordance with section 28 of the Construction Act, those payments may be considered to reduce the security posted to vacate a lien. Using section 28 to make direct payments to subcontracts, including for holdback, may be an effective way to flow funds that are owing and reduce security posted for a lien.
Background
In the case of Demikon Construction Ltd. v Oakley Holdings Inc1, the defendant owners moved for a reduction of security posted into court to vacate the lien claimant’s lien because the owners had made direct payment to the lien claimant’s subcontractors under section 28 of the Construction Act.
The Court’s Decision
The court found that section 28 permits an owner to make a payment to any person:
- having a lien -- not just limited to a claim for lien2; or
- on account of any amount owing to that person, for services or materials supplied to the improvement – again not just limited to a person who is a lien claimant.
upon notice to the proper payer of that person.
The court held that section 28 payments should factor into the court’s summary exercise to reduce security paid into court. Payments made under section 28 of the Construction Act discharge the lien to the extent paid.
In this case the court found that the owners made the direct subcontractor payments. The court made the finding based on accurate and reliable evidence that was not contradicted by the lien claimant.
1 2024 ONSC 2151 (CanLII), <https://canlii.ca/t/k4120>
2 Section 14 of the Construction Act states that person who supplies services or materials to an improvement to an owner, contractor or subcontractor has a lien upon the interest of the owner in the premise improved for the price of those services or materials. This contrasts with the definition of “lien claimant” which means a person with a preserved or perfected lien.