The Court confirmed that a construction contract can be legally “terminated” or “abandoned” through conduct alone, without the need for formal written notice. For contractors, subcontractors and suppliers, this means the strict time deadline to register a lien claim and/or to perfect that lien may start ticking the moment you remove your tools or an owner changes the locks. Waiting for an official termination letter to start the lien deadline could result in your lien rights expiring entirely.
Background: The Dispute
The case involved a dispute over residential renovations between a contractor (JP Reno) and the homeowners. By August 2022, the homeowners were frustrated by delays and the pace of work. During an acrimonious meeting on August 17, the contractor demanded an additional $90,000 to continue the project, which the homeowners resisted. Following the meeting, the contractor sent an email stating that the balance needed to be paid “immediately to continue with future work”.
That same evening, the homeowners changed the locks to the property to prevent the contractor and its crew from accessing the site. On August 18, the contractor arrived at the property with police to retrieve his tools. On that same day, he also removed the building permit from the front door and contacted a rental company to have the site’s portable toilet removed.
The contractor registered a claim for lien against the property on October 13, 2022, otherwise known as “preserving” the lien. The claim of lien listed the last day worked as August 28. There was no dispute that this registration was timely.
The next required step is to “perfect” a lien by commencing a lawsuit and registering a certificate of action/certificate of lis pendens (terminology varies by province/territory). The relevant Ontario deadline is 90 days following the 60-day lien preservation deadline – in effect, 150 days after contract termination or abandonment.
The contractor “perfected” its lien on January 20, 2023 via commencing an action against the homeowners. This was less than 150 days after August 28 (the date listed in the contractor’s lien), but more than 150 days after the homeowners argued the contract was terminated, on August 18. The homeowners brought a motion to vacate the lien on the basis that the lien was perfected out of time. The chambers Justice allowed the homeowners’ application, and the contractor appealed.
What the Court Said: Defining Termination + Abandonment
The Court’s analysis focused on two ways a contract ends under the Ontario Construction Act: termination and abandonment.
Termination via the Totality of Circumstances: The contractor argued the contract was never officially “terminated” because the owners never sent a clear notice saying he was fired. The Court disagreed, stating that termination does not require “magic words”. Instead, the Court looked at the cumulative effect of the homeowners’ frustration and the act of changing the locks. These actions effectively communicated a desire to end the relationship regardless of the lack of formal paperwork.
Abandonment: Objective Facts vs Subjective Hopes: More importantly, the Court found the contractor had abandoned the project. Abandonment occurs when there is a “permanent cessation or stoppage of work” combined with an intention to stop. Crucially, the Court established how it determines that intention:
Objective Conduct Trumps Subjective Intent: The contractor claimed he always intended to finish and tried to call the owners. The Court dismissed these as “bald assertions” because there was no documentary evidence (like texts or emails) to back them up, and phone records showed no such calls were made.
The “Legal Impossibility” of Work: The Court highlighted that the contractor cancelled the portable toilet rental. Under the Occupational Health and Safety Act, a toilet is a legal requirement for an active construction site. By removing it, the contractor made it legally impossible for his crew to work, which the Court saw as clear evidence of an intent to abandon.
The Police and Permit: The Court found that retrieving tools under police escort and physically removing the building permit from the door were “clear and convincing” signs of a permanent departure.
Takeaways
The Construction Act timelines, along with those of lien legislation in other provinces and territories, leave “no room for judicial discretion”. With limited exceptions, if a deadline is missed by one day, lien rights will be compromised. This is particularly the case for deadlines to preserve liens (i.e. register against title to a property) or to perfect liens (i.e. commence a court action to enforce the lien against the owner).
Contractors: be cautious with “administrative” steps like removing permits or cancelling site services. The law views these as objective signals of termination and/or abandonment, regardless of what you “intend” to do later.
Owners: Changing the locks is a powerful signal that can constitute termination. However, unequivocal written termination is always preferred, so that there can be no dispute over the timing for lien preservation and perfection.
The deadlines for liens are not as straightforward as they may appear. If you are a contractor seeking to protect your right to payment, or an owner seeking to discharge an expired lien, please contact Anthony Burden in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law’s Construction Group for guidance and assistance in this area.
