KingSett ruling limits how construction liens can outrank a building mortgage
The developer here ran into financial difficulty on a residential townhouse project in Barrie, Ontario, and defaulted on its loan from senior lender KingSett Mortgage Corporation. A receiver was appointed on March 21, 2024, and the project was later sold to homebuilder Dunsire Homes Inc.
The two suppliers had been paid in full on their earlier invoices and only partly on the rest. They argued their priority claim should equal ten percent of everything they invoiced, not just ten percent of what remained unpaid. The purchaser, which stepped into the lender’s shoes, said the fully paid invoices should be left out.
The question for the court was whether a holdback shortfall is measured against total invoices or only unpaid ones. It sided with the purchaser. Where invoices have been paid in full and no subcontractor holds a competing lien claim, the court held, there is no shortfall tied to that money, so the priority claim is ten percent of unpaid invoices only.
Reading it the suppliers’ way, the court said, would be “commercially absurd” because it would let a contractor collect the same ten percent twice, once when the owner paid the invoice in full and again as a priority claim against the lender.
The panel was careful to limit the ruling. It applies where no subcontractor lien claims exist at the time of the dispute. The result could differ, the court noted, if subcontractors were in the mix.
