The Builder Went Under: Getting Trades Paid Through a Lien

The situation

Hyun-woo ran a small plumbing contracting business out of Kenora, doing rough-in and finishing work on new residential builds around the region. His partner Jae-won, a plumber by trade, worked alongside him on most jobs. For a project building a small block of townhomes, the general contractor had hired Hyun-woo's crew to handle all the plumbing rough-in and fixtures, on a contract worth a sum in the low six figures, billed in stages as the work progressed.

The first two progress invoices were paid on time. The third came back late, with an apology and a promise to catch up on the next draw. The fourth did not come at all. By the time the framing was done and the plumbing was substantially complete on two of the four units, Hyun-woo was owed a meaningful piece of the contract value and getting only vague answers from the builder's office about when payment would resume. Word travelled fast in a market the size of Kenora's construction trade: the electrician on the same project, a contractor named Shira, and the drywall crew were hearing the same thing. The builder, it turned out, had run into a serious cash crunch, caught between rising material costs and a construction loan that was not stretching far enough to finish the project.

Hyun-woo called Treadstone Law after a conversation with another contractor on the job, who mentioned that unpaid trades on a construction project in Ontario have a specific, time-limited right to secure their unpaid claim against the property itself. He wanted to know whether that was true, and whether it was already too late.

The legal problem

It was not too late, but the clock was real. Under Ontario's Construction Act, a contractor or subcontractor who supplies labour or materials to an improvement to land has a lien: a legal claim against the property itself for the value of the unpaid work, which can be registered on title and, if necessary, enforced by forcing a sale of the property to satisfy the debt. The lien exists automatically once work begins, but it only survives if it is preserved by registering a claim for lien against the title within a strict window measured from specific triggering events, such as the last supply of services or materials to the project or the publication of a certificate of substantial performance. Miss that window and the lien right lapses permanently, regardless of how clearly the money is owed.

The Construction Act also sets a further, shorter deadline to perfect the lien after it has been preserved, generally by starting a court proceeding and registering that proceeding against the title as well. Preserving without perfecting in time is nearly as fatal as not preserving at all.

There was a second layer of urgency specific to this project. A general contractor's cash crisis rarely stays contained to one trade. Once Hyun-woo's team began comparing notes with the electrician and the drywall contractor, it became clear that at least four different trades were owed money on the same four-unit project, and the builder's construction loan had likely already advanced most of what it was going to advance. If the builder became formally insolvent, the trades would not simply be racing each other to get paid — they would be competing for a share of whatever equity remained in a property that also had a construction lender's mortgage registered ahead of most of the trade claims, since that mortgage had been registered on title before any of the trades had begun supplying material or labour to the site. Ontario's Construction Act does give some liens a priority charge on holdback funds the owner or lender was supposed to retain, but that protection only helps if the required holdback was actually kept back — and by the time Hyun-woo called, nobody yet knew whether it had been.

What we did

1. Calculated the lien deadline precisely. We confirmed the date of Hyun-woo's last supply of plumbing materials and labour to the project and worked the strict statutory preservation window backward from that date, rather than from the date of the last unpaid invoice, since those two dates were not the same and using the wrong one would have understated the time remaining.
2. Registered a claim for lien against the title without delay. We prepared and registered the claim for the full amount Hyun-woo was owed, supported by his contract, his invoices, and delivery records for materials supplied to the site, days before the preservation deadline expired.
3. Coordinated with the other unpaid trades' lawyers. Once it was clear multiple trades held claims against the same four units, we opened communication with the lawyers acting for Shira, the electrician, and the drywall contractor to compare deadlines, priority positions, and what each trade knew about the state of the construction loan and any holdback that had, or had not, been retained.
4. Perfected the lien by starting a court action within the second deadline. Preserving the claim on title was not enough on its own; we started a lien enforcement proceeding in the Superior Court and registered a certificate of that action against the property before the second statutory clock ran out, keeping the lien alive.
5. Investigated the holdback and the lender's priority position. We pressed the builder and, once appointed, the insolvency trustee overseeing the wind-down, for records showing whether the required construction holdback had actually been retained from progress payments, since a properly maintained holdback gives lien claimants a charge that can rank ahead of some later-registered claims against those specific funds.
6. Negotiated a coordinated settlement among the trades rather than a race to judgment. With the property's equity limited and four separate liens competing for it, forcing a sale through the courts risked eating up most of what remained in legal costs on all sides. Instead, we worked with the other trades' counsel and the trustee to agree on a proportional distribution of the funds that were available, based on each trade's documented claim and lien priority, avoiding years of litigation that would likely have left everyone worse off.

The outcome

The holdback records that eventually surfaced showed the builder had retained only part of what the Construction Act required, which reduced how much protected priority the trades could claim over the construction lender's mortgage. Between the recovered holdback and a negotiated release of a portion of the remaining project equity, the settlement paid Hyun-woo roughly sixty percent of what he was originally owed — a partial recovery, reached within several months of the lien being registered, rather than the full amount and rather than nothing. The other trades on the project settled on a similar proportional basis, reflecting the size of their claims relative to what was actually available.

It was not the outcome anyone wanted going in, but it was a materially better result than doing nothing, or than each trade pursuing its own separate lawsuit and dividing a shrinking pool of money three or four ways after competing legal costs. Hyun-woo's business absorbed the loss on the unpaid balance, budgeted it against the job, and kept working; the missed holdback amount became one of several factors he now checks for on larger projects before extending significant unbilled work to a general contractor he has not worked with before.

What you can learn from this