After a contractor dispute, an owner may pay trades directly and then ask the court to reduce the security posted to vacate the contractor's lien. In Demikon Construction Ltd. v. Oakleigh Holdings Inc., 2026 ONCA 808, the Court of Appeal for Ontario held that those payments can be credited only if the subcontractors were "persons having a lien" at the time they were paid (paras. 5, 42, 55). Section 44(5) does not create a stand-alone credit. The owner who wants the reduction has to prove that the conditions in s. 28 are met (paras. 60–61). The Court dismissed the appeal (para. 75).
The decision at a glance
Citation: Demikon Construction Ltd. v. Oakleigh Holdings Inc., 2026 ONCA 808 (Miller, Trotter and Osborne JJ.A.; reasons by Osborne J.A.; heard May 11, 2026; released November 10, 2026).
Official text: Court of Appeal for Ontario decision
Result: appeal dismissed (para. 75). Section 28 applies only to payments to persons having a lien (paras. 6, 42). A fresh s. 44(5) motion remains open if those conditions are later proved (para. 74).
What happened
Aurelia Limited Partnership (general partner: Oakleigh Holdings Inc.) was the owner and developer of a condominium project in Orillia (para. 8). It hired Demikon Construction Ltd. as general contractor and construction manager (para. 9). After disputes over delays and deficiencies, Aurelia terminated the agreement on March 29, 2021 (para. 10). Demikon registered a claim for a lien on March 31, 2021, for $5,035,812.66, and later perfected that lien in the amount of $5,085,812.66 (paras. 11, 13). Aurelia posted security in the full amount of the lien and vacated it under s. 44(1) (para. 14).
Aurelia notified Demikon that it intended to keep paying certain subcontractors, as contemplated in s. 28, and made direct payments between March 5, 2021 and April 6, 2022 (para. 12). It moved under s. 44(5) to reduce the posted security by those payments, totalling $3,554,224.83 (paras. 15–16). The motion judge allowed the reduction even for payments to subcontractors who were not persons having a lien when paid; the Divisional Court reversed (paras. 6, 18–19, 22).
What the Court held
The appeal was a question of statutory interpretation, reviewed for correctness (para. 26). The contract predated July 1, 2018, so the Construction Lien Act as of June 29, 2018 applied. The Court said ss. 28 and 44(5) are unchanged in the current Construction Act (para. 5, footnote 1).
Section 44(5) lets a court, on notice, reduce security posted under s. 44 where it is appropriate to do so. The Court described that provision as mechanical and discretionary; the text does not say when a reduction is appropriate (paras. 32–33). That question is engaged by s. 28 (para. 34).
Section 28 is headed "Direct payment to person having lien." A qualifying payment — made without obligation, to a person having a lien, for amounts owing for services or materials supplied to the improvement, with written notice to the proper payer — is deemed a payment to that proper payer. It does not reduce the required holdback, or amounts retained for a written notice of lien given by someone else (para. 34).
The owner argued that s. 28 also covers anyone to whom an amount is owing for work on the improvement, whether or not that person still had a lien when paid (para. 38). The Court rejected that reading: s. 28 applies to direct payments to a person having a lien, relating to amounts owing to that person for services or materials supplied to the improvement (para. 42). "Person having a lien" includes a lien claimant and a person with an unpreserved lien; a "lien claimant" has a preserved or perfected lien (para. 43, quoting s. 1(1)).
An owner can always choose to pay a subcontractor. That payment is not deemed a payment to the contractor under s. 28 if the payee does not have a lien — including because a lien never arose, was resolved, or has expired (para. 58). There is no stand-alone credit under s. 44(5) independent of s. 28 (para. 60). The party seeking the reduction has the burden of proving that it is appropriate, including that the preconditions of s. 28 are met (para. 61).
The motion judge had not found which payments, if any, were made to persons having a lien (para. 62). The Court of Appeal similarly could not tell whether the payees still had a lien when paid. At least some payments were made more than a year after termination, so at least some liens would have expired, and no reduction could be quantified (paras. 65–66, 73). Nothing bars a fresh s. 44(5) motion if that evidence is later supplied (para. 74). The Court also noted commentators' caution against direct payment without the contractor's authorization (paras. 67–68).
What changed, and what didn't
The Court confirmed that s. 28 is limited to payees who are persons having a lien when paid, and that s. 44(5) is not an independent path to a credit (paras. 42, 55, 60, 75). It did not decide that these owners can never reduce this security; a fresh motion remains open if the evidence is supplied (para. 74). Direct payments are not forbidden; the question is whether they are deemed payments to the contractor under s. 28 (para. 58).
Who this affects
This decision matters for owners who pay trades directly after a contractor dispute and have posted security to vacate the contractor's lien (paras. 12, 14–16, 55); for contractors defending that security (paras. 17, 61); and for subcontractors, whose lien status at the date of payment is the gate to any credit (paras. 42, 66, 74). It is about construction-lien security, not residential tenancy procedure.
Practical takeaways
A direct payment is not, by itself, a credit against lien security. Section 28 has conditions (paras. 34, 55, 58).
The payee must have been a "person having a lien" at the time of payment (paras. 42, 55, 74).
The owner seeking the reduction bears the onus (para. 61).
Timing matters. If the payee's lien had expired before payment, that payment does not qualify (paras. 58, 65–66).
Written notice to the proper payer is required, and risks remain if the contractor disputes the account (paras. 34, 67–68).
Frequently asked questions
Can an owner reduce lien security just by paying subcontractors directly?
Only if the conditions in s. 28 are met, including that the payee was a person having a lien when paid. Section 44(5) does not create a stand-alone credit (paras. 42, 55, 60).
What if the subcontractor's lien had already expired?
That payment is not deemed a payment to the contractor under s. 28 (para. 58). Some payments here were made more than a year after termination, so some liens would have expired (para. 66).
Who has to prove that the payees still had a lien?
The party seeking the reduction (para. 61).
Does this decision prevent a later reduction of the same security?
No. A fresh s. 44(5) motion remains open if the evidence establishes that the subcontractors paid directly were persons having a lien when paid (para. 74).
Do ss. 28 and 44(5) still read this way under the current Construction Act?
The Court said the key provisions are unchanged (para. 5).
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Written by the lawyers of Francis Mehr LLP. Published [DATE OF PUBLICATION]; reflects the decision released November 10, 2026. This post is general information, not legal advice.