Construction Lien Settlements

What Happens When a Construction Lien Matter Is Settled in Ontario?

Construction liens in Ontario are powerful legal tools used by contractors, subcontractors, and suppliers to secure payment for their work or materials on a property. When a lien is registered on title, it can delay financing, refinancing, or the sale of the property. Fortunately, many construction lien disputes are resolved through settlement. But what happens next when a lien matter is settled? And what role does the lawyer play?

The Settlement Agreement

Once the parties reach a resolution—often after negotiation between lawyers—the terms are typically formalized in a settlement agreement. This agreement outlines:

• The total amount to be paid

• Who is to receive the funds (e.g. contractor, subcontractors)

• The deadline for payment

• The party responsible for discharging the lien

• Any releases or waivers

• Legal costs or interest, if applicable

Lawyers will carefully draft or review this document to protect their client's interests and ensure clarity of obligations.

The Role of the Lawyer: Trust Account and Funds Management

One of the critical functions of a lawyer in a lien settlement is to receive and manage settlement funds through their trust account. Under the Law Society of Ontario's rules, lawyers must handle trust funds with precision and integrity. Here’s how that process typically unfolds:

Receiving Settlement Funds: Once the settlement is signed, the paying party—often the property owner, general contractor, or their lawyer—will transfer the agreed amount to the lawyer’s trust account.

Holding Funds in Trust: The lawyer receiving the funds does not immediately release them. Instead, they will typically hold the funds in trust, pending certain conditions—such as registration of a discharge of the lien or delivery of a release.

Disbursing Funds: Once conditions are met, funds are released to the entitled parties. Sometimes the funds are split between multiple lien claimants, or certain amounts are held back if there are outstanding obligations or disputes among subtrades.

Undertaking to Discharge the Lien

An important part of finalizing the settlement is removing the lien from the property’s title. This is usually done by a lawyer through a formal undertaking—a binding promise to do something.

In lien settlements, the lien claimant’s lawyer typically undertakes:

• To file a discharge of the lien with the Land Registry Office within a specific timeframe (usually a few days) after receiving full payment;

• To advise all parties in writing once the lien has been discharged; and

• To return any overpayment, if applicable.

Final Notes

Settling a construction lien matter requires careful coordination between lawyers, clients, and sometimes lien claimants who aren't represented. The lawyer’s job is more than just paperwork—they ensure funds are handled securely, deadlines are met, liens are properly discharged, and all parties walk away with legal certainty.

If you’re dealing with a construction lien issue in Ontario—whether as a homeowner, contractor, or subcontractor—consulting an experienced construction lawyer can help ensure that settlement is reached efficiently and executed properly. Our affiliated law firm has successfully negotiated and settled hundreds of construction lien disputes.