20 Jul Unpaid contractors should seek prompt legal advice
Contractors owed money for work or materials have two options — a lien or a lawsuit — and in either case, it is helpful to seek legal counsel as early as possible, says Barrie civil litigator Scott Hawryliw.
“Consult a lawyer as soon as there is any indication of a problem,” says Hawryliw, founder of SRH Litigation. “Sometimes having an outside professional involved will lead to a solution, and if not, the contractor can be advised on the best legal remedy in a particular situation.”
If a general contractor has done work on a home after a contract has been signed, and the homeowner doesn’t pay, that firm will be in a good position to launch a lawsuit, he tells AdvocateDaily.com.
“With typical home renovations, the general contractor can be fairly certain to receive the money owed, since the home has value and is in the name of the homeowner, so they have to eventually live up to the terms of the contract if a lawsuit is launched,” says Hawryliw.
One major exception to that rule would be if the homeowner is overly leveraged and in debt, meaning there is no real equity in the home, he says.
Subcontractors are in a much more difficult situation, says Hawryliw, as they do not have a written contract with the homeowner so they cannot launch a lawsuit.
“That is why we have construction liens,” he says. “If a subcontractor has provided labour or materials to a project, and the general contractor is not paying them for whatever reason, their only option is to put a lien on the property to get back at least some of the money that is owed to them.”
Hawryliw describes a construction lien as a last resort.
“They are an extreme measure,” he says. “They are needed sometimes, but it’s important to understand that you’re putting a lien on a property before you have proven anything in court.”
Hawryliw says it is essential for contractors to seek legal advice as soon as they can, as there is a 60-day time limit to register the lien, which starts from the last day work was done on the property or material was delivered there.
“If subcontractors come to me early in that period, we have the luxury of having the time to negotiate a settlement, without a lien,” he says. “But if they wait until the end of that 60-day period, imposing a lien is the only option.”
Hawryliw warns contractors not to ask for an excessive amount with the lien, as that could have harsh cost consequences if the matter ends up in court.
“If a contractor puts a lien on a home and it is significantly more than they are owed, and that causes the project’s financing to fail, and ultimately the project to fail, they could be looking at paying significant damages,” he says.
That is a major difference from lawsuits, Hawryliw says, where there is no financial penalty if the statement of claim is for significantly more money than what ends up being paid.
“With a lien, you will be in big trouble if you can’t prove you are owed the amount of money you are asking for,” he says.
In all cases, it is crucial for contractors is to start with a written contract that specifies the work to be done and the amount of money to be paid for that work, as well as payment deadlines, Hawryliw says. If those payments are not made, contractors should immediately seek legal advice.
“Get to a lawyer as early as possible so that you have the luxury of being able to say that you tried to resolve this without resorting to litigation,” he says.
“Liens always damage relationships, which is why they should be considered as a final option,” Hawryliw says.