Serena Homes Construction Limited v. Shakil et al, 2025 ONSC 3855, offers important lessons for transactional real estate lawyers about construction liens, particularly when disputes arise over allegedly exaggerated lien amounts. While you may not regularly handle construction litigation, understanding how courts approach these disputes can help you advise clients on risk management and the potential consequences of lien registration.
Background
The case involved a residential construction project in King, Ontario, where property owners Shakil and Shakeel hired Serena Homes Construction Limited to provide development and construction services. The relationship began in February 2021 and ultimately soured by August 2024, resulting in Serena Homes registering a construction lien for just over $1.6 million.
The parties fundamentally disagreed about the nature of their arrangement. Serena characterized the agreement as involving two distinct service stages: development services (architectural drawings and municipal approvals) and construction services where Serena would act as contractor with its own pricing structure. In contrast, the owners described it as a “management agreement” for a flat fee of $125,000, with contractors and materials provided on an “at cost” pass-through basis with no profit.
The Invoice Manipulation Controversy
A critical turning point occurred in August 2024 when the owners discovered that Serena had allegedly altered a quote from Rotberg Steel (originally $220,350) into an invoice for $333,350, and that no final order for the steel had been placed. This discovery prompted the owners to contact other contractors to cross-reference invoices, revealing what they characterized as fraudulent manipulation of multiple invoices.
By the time of termination, the owners had paid Serena $1,696,388.93 toward the project.
The Motion to Discharge
The owners brought a motion seeking to discharge the construction lien entirely under sections 35 and 47 of the Construction Act. Their position was straightforward: the fabricated invoices demonstrated the lien was frivolous, vexatious, and an abuse of process warranting complete discharge.
Interestingly, before the motion was brought, Serena’s counsel had already acknowledged on September 18, 2024, that the lien was registered for an exaggerated amount and proposed bringing a motion at Serena’s expense to reduce it to $1,352,092.55. The owners refused to consent, choosing instead to bring their own motion.
The Court’s Analysis
Justice de Sa dismissed the motion to discharge but ordered the lien reduced to $1,043,282.55.
The court relied on the framework established in GTA Restoration Group Inc. v Baillie, 2020 ONSC 5190, which clarified that motions to discharge liens under section 47 are not necessarily summary judgment motions, though they may be treated analogously when seeking disposition on the merits.
Several factors influenced the decision:
- Substantial Amount Still Owing: Serena had billed $2,746,480.68 in total, of which $1,696,388.87 had been paid, with mark-ups of $286,966.90 on subcontractor amounts. The court found that a substantial balance remained outstanding even accepting the owners’ position.
- Triable Issues: The court determined that “the exact amount owing and whether the mark-ups and additional fees were contemplated by the terms of the agreement, is an issue for trial.” The fundamental disagreement about the nature of the contractual relationship could not be resolved summarily.
- Legitimate Remedy: Citing XPL Construction Solutions Inc. v North Bay Capital Investments Ltd., 2023 ONSC 238, Justice de Sa emphasized that discharge orders should not be made lightly as doing so may deprive a contractor of a legitimate remedy.
- Good Faith Error: Serena maintained that the lien exaggeration resulted from inadvertent miscalculation rather than willful exaggeration, and it had proactively sought to correct it before the motion was brought.
Practical Implications for Transactional Lawyers
This decision highlights several important points for real estate lawyers advising clients:
- Document the Agreement: The absence of a written contract created the central dispute in this case. Clear documentation of pricing structures, mark-ups, and fee arrangements is essential.
- Lien Reduction vs. Discharge: Even where invoices have been improperly altered, courts may reduce rather than discharge a lien entirely if substantial amounts remain legitimately owing. The remedy of reduction under section 35(2) preserves the lien claimant’s security while addressing overreach.
- Good Faith Matters: A contractor’s willingness to acknowledge errors and propose corrections may influence how courts exercise their discretion, even where serious irregularities exist.
- Strategic Considerations: The owners’ refusal to consent to Serena’s proposed reduction motion meant they bore the costs and delay of bringing their own motion, which ultimately achieved a similar result. Clients should carefully weigh whether accepting a voluntary reduction serves their interests better than litigating for complete discharge.
For transactional lawyers, Serena Homes underscores the importance of clear contracting at the outset and realistic expectations about lien disputes when relationships break down.
