Construction Liens and the Small Claims Court

Small Claims Court is a popular venue for disputes related to construction and renovation. Non-payment for work done and dissatisfaction with the job is all too common. 

Outside of the small claims court procedure, unpaid contractors often seek a construction lien to encourage payment from the customer. As a result, customers frequently have to deal with a lien on their property even if they believe that no payment is due under the circumstances because the work was shoddy.

For a contractor, is a construction lien always the best way to settle an unpaid account? On the flip side, is immediate payment the only option for a dissatisfied customer? In most cases, the parties involved say “yes” to both questions. Well, that’s not always right.

Let us first briefly consider the nature of a construction lien. A contractor may fairly easily register it against the customer’s house by completing and filing the necessary paperwork. No preliminary court order is required. That’s what makes the construction lien attractive – obtaining it does not require going through a small claims or other court procedure. However, this may be the only advantage of this legal instrument for small contractors whose money claims do not exceed the monetary jurisdiction of the Small Claims Court ($25,000).

As mentioned, registering a construction lien is not very complicated. It must be filed with the land registry office, or “preserved,” within 45 days after the contractor completed the work ordered. If this is not done, the lien is “expired.” However, that’s not all that needs to be done to make a construction lien work. In order to maintain the lien, the lien claimant must then “perfect” the construction lien within the next 45 days. To perfect the lien, the contractor must commence a court action against the owner of the house. This means that the contractor should prepare and file a plaintiff’s claim and go through the entire legal process as he or she would have done in any other court case. The right to seize and sell the property under the lien arises only after the court decides that the contractor’s demand for money is legally well-grounded. If a lien is not perfected by way of a court procedure, it may be easily removed by the owner of the property.

What is not commonly known among small contractors is that a lawsuit to perfect a construction lien can only be filed with the Superior Court of Justice. In practice, this means that even a claim for $10,000.00 must go to a higher court even though it is within the jurisdiction of the Small Claims Court. The question is whether it makes practical sense to undertake all the legal expenses and complex procedures of the higher court when the claim can be efficiently made and considered in the Small Claims Court. Most of the time, this isn’t the case.

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