Old Debts, New Contract, Valid Lien?

Marydel and Trillium entered into two contracts respecting a large detached residential development. Despite there being an approximately $200,000 dispute between the parties respecting amounts owing under the first contract, Trillium did not register a lien, and the homes were sold.

Marydel and Trillium executed a second contract for masonry work on a separate lot that was not included in the first contract. The second contract included a rate sheet for materials and services to be provided as well as an express price clause, which provided that the balance owing under the first contract be forwarded to, and form part of, the second contract price.

Trillium performed the work under the second contract but was not paid by Marydel. As a result, Trillium registered a lien on the second contract lands for the outstanding amount of the first contract plus the amounts respecting the work performed under the second contract.

Marydel disputed amounts owed to Trillium but ultimately posted security into Court and brought an application to discharge or reduce the amount of the lien. Marydel took the position that no lien could be registered for amounts owed under the first contract that were no longer lienable, as those lien rights had expired and the $200,000 owed was not with respect to work on the second contract lands.

What the Court Said

The Court dismissed Marydel’s application. The primary issue was whether the Ontario Construction Act prohibited the lien claimant, Trillium, from registering a lien for the full amount of the agreed-upon “price”. In other words, whether a lien for amounts that were no longer lienable was still valid based on the agreement between the parties.

The Court relied on the interpretation of “price” in the Construction Act, being: (i) absent agreement, the value of the services; (ii) where there is agreement but the actual value of the services and materials supplied were not completed; or (iii) the price for the services and materials as agreed.

The “price” of the second contract included the outstanding amount of the first contract as a result of the express inclusion of the price clause. The Court did not make any findings regarding the parties’ agreement on the intention or interpretation of the price clause.  However, it did find that the price set out in the second contract included the outstanding amount from the first contract plus the masonry services provided to the second contract lands.

The Court confirmed that parties are free to determine a price for lienable services, enforceable under the Construction Act, including because the Act was silent on any such limitations. Where parties set a price for lienable services, that price becomes the benchmark for the amount that can be liened. For example, if the second contract had not included the price clause, rather an inflated stipulated price, Trillium would be entitled to a lien for the inflated lump sum value. Accordingly, the breakdown of the price in the price clause was not determinative of amounts capable of being liened. Rather, the price clause confirmed the parties’ agreement on the price for lienable services under the Act.

Marydel argued that a lien cannot include amounts for non-lienable services. However, the Court rejected that argument, distinguishing the cases relied upon on the basis that those liens were vacated or reduced because the underlying services supplied were not lienable and there was a distinct price agreed for lienable and non-lienable services.

The Court also dismissed Marydel’s position of potential severe effects on the construction industry. Marydel argued that a party may secure virtually any debt with a lien by way of agreement to circumvent the Act and prejudice other lien claimants. The Court acknowledged the potential risk of parties entering into a new contract to supply nominal work for the collateral purpose of reviving their lien rights. However, the Court held that this was likely to be rare as the opposing party needed to agree to the revival of any discharged lien expressly.

Takeaways

A Court may uphold agreements and liens registered for the total price of a construction contract, including prior debts or otherwise non-lienable work. Where work is incomplete, the price for the purpose of a lien may include amounts outside of the work completed, including amounts outstanding from other projects if the contract price is expressly agreed to include such amounts.

For owners, this decision emphasizes the importance of ensuring the total price included in a construction contract is limited to the scope of lienable work being performed on lands improved. If not, there is a risk that other debts may be revived, secured, and enforced through applicable lien regimes. This may inflate potential risk and liability exposure.

For contractors, strategically structuring contract pricing may preserve or revive lien rights if pre-existing debts are owed by existing owner clients. However, this case also confirms the importance of ensuring the contract price accurately reflects the value of lienable work being performed. Otherwise, potential lien rights may be limited by a lower agreed amount, for example a contractor agreeing to reduce a contract price based on prior deficiencies on unrelated lands under separate contract.

If you would like advice on lien rights or drafting or reviewing construction contracts, including price clauses, please contact Anthony Burden or Tristen Pomerance in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law's Construction Group for guidance and assistance in this area.

Link to decision: Trillium Masonry Group Inc. v. Marydel Homes (Beaverton) Inc. et. al., 2025 ONSC 4194