What should you know about Property Liens and Encumbrances in Ontario?

In the simplest of terms, a lien represents a financial claim against a property, and an encumbrance represents a legal limitation. In both cases, they can each cause complications in a real estate transaction - whether you are buying or selling.

What is a lien?

A lien is a financial claim on a property to secure payment of debt. It means someone is owed money, like a bank with a mortgage or a contractor who hasn’t been paid. An example of a lien is a tax lien imposed by the government when property taxes or income taxes aren’t paid.

How is a lien against a property established?

A lien usually begins when there’s a legal or contractual relationship where one party owes another money or performance.

Examples:

• You sign a mortgage agreement with a lender
• A contractor does work on your property but isn’t paid
• The municipality is owed unpaid property taxes

Once the right exists, the lien holder usually registers the lien on the property’s title or through a public registry. The lien remains on title until the debt is paid, and the lien holder discharges or releases it. Only then is the property’s title considered “clear”.

What is an encumbrance?

An encumbrance is a broader term that encompasses liens, as well as other items such as easements or restrictive covenants. The most common encumbrance is a mortgage. Another example is a restrictive covenant that limits how you can use or develop your land. For example, a subdivision might ban certain fence heights or require homes to follow specific design guidelines.

How is an encumbrance established?

An encumbrance exists once someone gains a legal interest in your property, and it becomes official when it’s registered on title with the Ontario Land Registry Office.

Some encumbrances are voluntary, like a mortgage. Others are involuntary and arise by law, like a lien or an unpaid tax claim.

Can I sell a property with a lien or encumbrance?

The short answer is yes, but as the seller you are still responsible for paying off the debt.

A lien or encumbrance doesn’t stop you from listing or accepting an offer on your property. However, because the lien or encumbrance represents someone else’s legal or financial interest in the property, it must be cleared before the property title can transfer to the buyer.

Buyers expect, and lenders require, a clear title on closing day.

What happens during the sale to have a clear title?

1. Title search: The buyer’s real estate lawyer does a title search through Ontario’s Land Registry. Any registered mortgages, liens, easements, or covenants will appear. You can read more about title searches here.
2. Resolution before closing:
   • Financial liens like mortgages, tax arrears, or construction liens are typically paid off from the sale proceeds.
   • The seller’s lawyer arranges for a discharge or release of those lien
3. Closing: Once the liens are discharged and the title is cleared, the sale can close.

We are here to help

Working with a knowledgeable real estate lawyer ensures these issues are properly identified, addressed, and resolved, giving both buyers and sellers confidence that the property title is clear and the transaction will proceed smoothly.

Whether you choose an in-person closing meeting or a virtual appointment, McMurter & Associates will guide you with the expertise you are looking for when it comes to your real estate transaction.

To meet with a member of our firm, or if you have a real estate question, send us an email - info@mcmurter.com - or call us at 905-666-9200