January 7, 2015
You’ve likely heard the old saying that “you can’t squeeze blood from a stone.”
As you probably know, litigation is a lengthy, time consuming and expensive process. It can therefore be devastating to learn after years of litigation that an adverse party no longer has any money or assets to satisfy a judgment.
In certain disputes involving land, parties can take proactive steps to protect themselves from otherwise judgment proof debtors by securing an interest in the land, thereby preventing sale of the land during the litigation and forcing its sale to satisfy judgment. Two such tools are a Certificate of Pending Litigation and a Construction Lien. Each arises in different circumstances and carries its own benefits, requirements and limitations.
Certificates of Pending Litigation
In circumstances where there is a dispute over the ownership or title to land, a party claiming an interest in land may move before the Court and register on title a Certificate of Pending Litigation (CPL). The CPL may initially be obtained without knowledge of the owner, and will effectively prevent the owner from disposing of the property or even refinancing, since it is a notice to the world that the property is the subject of litigation. Once registered, the CPL can only be discharged from title on consent, upon resolution of the dispute, or if the Court orders its discharge.
A CPL is limited in that the registering party does not gain an interest in the land, whereas a Construction Lien actually gives the registering party an interest in the particular land in dispute.
Generally speaking, where a party supplies services or materials as part of an improvement to a property and does not get paid, the party gains the right to register a charge (i.e. Construction Lien) against that property for the value of the service / materials supplied, which could ultimately (albeit rarely) result in sale of the property to pay the amount owing.
In order to gain the benefit of a Construction Lien, it must be preserved (i.e. registered on title) within 45 days of the last day worked / material supplied. In addition, within 90 days of the last day worked / material supplied, the lien must be perfected by the commencement of an Action and registration of a Certificate of Action on title. In turn, this action must be set down for trial within two years from the date of commencement of the Action. The lien will prevent the sale or refinancing of the property and will prevent any financial draws for ongoing construction until one of the following takes place:
A) the lien is vacated by one of the parties higher up the construction pyramid posting security into court. In this case, the lien, which previously was on title and attached to the property, is removed from the property and now attaches to the security posted; or,
B) the lien is discharged, meaning it is no longer on title or attached to the security. This is usually only after an agreement is reached between the parties or disposition of the court.
The Construction Lien can be a highly effective method of recovering debts in the right circumstances. However this process can become complicated when there are multiple lien claimants and competing interests.
Both CPL’s and Construction Liens are powerful tools with far reaching consequences. However, they should not be used lightly as they can be scrutinized by the Court as well as opposing parties. For this reason, the Courts can impose severe costs consequences against the registering party in situations where the CPL or Lien is inappropriately registered. It is therefore recommended that you speak with litigation counsel before undertaking either of these potential remedies.