Offices in Ottawa and Perth
(613) 722-1500

CONTACT US (613) 722-1500

Gimme Shelter – Lien Sheltering under Ontario’s Construction Act

Gimme Shelter – Lien Sheltering under Ontario’s Construction Act

By:

Posted October 29, 2021

In a previous blog post, we reviewed the steps that a contractor or supplier must take in order to first “preserve” and then “perfect” a construction lien under Ontario’s Construction Act – that is, to prevent it from expiring. Preservation occurs by registering a lien with the Land Registry Office. Perfection then requires a lien claimant to commence a court action to enforce the lien, and to file a corresponding Certificate of Action with the Land Registry Office.

However, section 36(4) of the Construction Act creates an alternate method for perfecting a construction lien, called “sheltering.” Sheltering allows a contractor’s or supplier’s lien (once it has been registered/preserved) to be perfected by another lienholder commencing a court action to perfect their own lien. In other words, a claim advanced by one contractor can automatically perfect liens held by other contractors working on the same project.

To qualify for sheltering, the rules set out in s. 36(4) are as follows:

  • The “sheltered” lien must have first been preserved;
  • The “sheltering” lien must have been perfected within the time limit for the sheltered lien to be perfected; and
  • The sheltered lien will only be perfected “as to the defendants and the nature of the relief claimed in the statement of claim under which it is sheltered”.

The rules also state that a sheltered lien, once perfected via sheltering, will not become invalid as a result of the sheltering lien later being shown to have been invalid. Finally, a defendant facing a sheltered lien claim is entitled to request and receive particulars of the claim of the sheltered claimant (since that claimant will not themselves have filed a claim containing particulars).

The case law surrounding sheltering has tended to focus on the question of how closely related the sheltered lien relates to the sheltering lien. For example: can a contractor have its lien perfected even if the work it did was entirely unrelated to the work performed by the other, sheltering, contractor? Can sheltering occur even if the sheltering party is a subcontractor who worked under the sheltered contractor?

The courts have firmly stated that the sheltering provisions are to be interpreted broadly and generously. As long as the sheltered contractor was doing work on the same project as the sheltering contractor, the sheltering will be valid. It is not necessary that the sheltered contractor’s work be a direct component of the sheltering contractor’s work. The courts have called this “vertical sheltering”, but have stated that the Construction Act provisions should instead allow for “horizontal sheltering”. Thus, instead of being overly rigorous and narrow in determining how the sheltering and sheltered liens are related, courts should be permissive in allowing lien claims on a project to be perfected even amongst unrelated subcontractors. It is even possible for a subcontractor’s claim to perfect the lien of a contractor higher up in the construction pyramid.

Despite the courts’ permissive approach to the law of sheltering, any contractor seeking to perfect a lien should be wary of depending on the actions of another party. Coordinating with other claimants can provide economies of scale in litigation, but it will always be safer and more certain for a lien claimant to retain control by perfecting their own lien. Any contractors considering advancing a claim should obtain legal advice as early as possible in the process to avoid falling afoul of the Construction Act’s strict deadlines.

This blog post was written by Brett Hodgins, a member of the Commercial Litigation team.  He can be reached at 613-369-0379 or at brett.hodgins@mannlawyers.com.

More Resources

Blog |
Practice Management

By: 

Posted January 30, 2023

“If you don’t know, the thing to do is not to get scared, but to learn.”  Ayn Rand, Atlas Shrugged It is what it is[...]
Blog |
Family Law

By: 

Posted January 26, 2023

You have made the decision to separate from your partner. Now what? You have a house, a pension, maybe you have children, debts, and an[...]
Blog |
Environmental Law

By: 

Posted January 24, 2023

The Ontario government has moved ahead with changes to the Ontario Wetland Evaluation System in support of Bill 23, More Homes Built Faster Act, 2022. [...]
Blog |
Employment, Labour, and Human Rights

By: 

Posted January 17, 2023

While each of these cases could have its own blog post, we have decided to create a list of important cases for employers to be[...]
Blog |
Employment, Labour, and Human Rights

By: 

Posted January 10, 2023

Constructive Dismissal is an incredibly important protection for Ontario employees – one that is often used successfully to enforce employment rights. If you ask members[...]
Blog |
Estate Litigation, Wills, Trusts and Estates

By: 

Posted January 4, 2023

Executing powers of attorney is an important component of estate planning and allows individuals to decide who will manage their affairs should they become incapable[...]

Subscribe to Our Newsletter

"*" indicates required fields

Name*
Consent*
This field is for validation purposes and should be left unchanged.