A mechanic's lien (called a construction lien in most Canadian provinces) is a statutory security interest that attaches to real property in favor of contractors, subcontractors, suppliers, and other parties who provide labour or materials to a construction project but go unpaid. The lien creates a non-consensual security interest in the property, effectively allowing the lienholder to compel sale of the property to satisfy the unpaid debt.
The mechanism exists because construction creates value in the underlying real property, and the law recognizes that the parties whose work and materials created that value should be able to assert a claim against the property if the owner does not pay.
The procedural requirements to perfect a lien are technical and statutorily prescribed, and missing a deadline by a single day typically defeats the lien entirely. Notice requirements vary by jurisdiction: some require a pre-lien notice given at the start of work or after first labour or material is supplied, while others impose post-work notice deadlines.
Lien filing deadlines run from substantial completion of the project or from last labour or material supplied by the claimant, typically within 60 to 120 days depending on the jurisdiction. Lien enforcement actions to convert the recorded lien into a money judgment must then be commenced within an additional statutory period, often 90 days to one year.
Across the United States and Canada, the specifics differ enough that a sponsor active in multiple jurisdictions needs jurisdiction-specific counsel for every project.
The most aggressive aspect of mechanic lien law is priority. In many jurisdictions, mechanic liens relate back to the date the first labour or material was supplied on the project (the 'commencement of the work'), which can be earlier than the date a construction mortgage was recorded.
This creates a real risk that a properly perfected mechanic lien for unpaid work primes a construction mortgage and recovers ahead of the lender in a foreclosure. Construction lenders manage this through pre-loan title searches and exception coverage, contractor and subcontractor lien waivers required as a condition of each draw, and lien bonds posted to clear specific recorded liens.
Sophisticated owners require unconditional final lien waivers from every tier of contractor as a condition of final payment, and verify that the holdback or retainage statutory regime in the relevant jurisdiction has been complied with throughout the project.
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