June 25, 2018
Ontario's Construction Lien Act becomes
the Construction Act on July 1, 2018
The Construction Lien Act Amendment Act, 2017 was passed on December 12, 2017. In addition to the change in name of the Construction Len Act, changes in force July 1, 2018 will tweak and amend existing lien procedures, extend lien time-frames and alter trust obligations. Other changes (most notably those which establish new prompt payment requirements and adjudication procedures) are scheduleid to come into force on October 1, 2019.
Unless the improvement is to a premises upon which a lease has been entered into prior to July 1, 2018, the changes that come into force on that date will only become effective as new improvements are put out to tender or contracted for. For subcontractors, the timing of the subcontract is irrelevant: it is the timing of the tender process or contract (whichever comes first) that governs. This is to ensure that everyone with rights and obligations in relation to an improvement will be playing by the same set of rules. Significantly, the question of when a contract was tendered or entered into will be a question of fact which might depend on a number of different factors.
Also, as above, where an improvement is to a premises upon which someone entered into a lease before July 1, 2018, these new provisions will not apply. This is because the new provisions change how leases and leasehold interests are addressed. Care must be taken as the transition provisions can be very complicated in their application. Towards determining whether the new provisions are in effect, it will be important to determine
who the contractor is;
when the contact in question was entered into;
if, and when, a contract was procured as part of a tendering process; and
whether or not the premesis being improved is subject to a leasehold interest.
The Act does not include mechanisms through which interested parties can confidently obtain this information. Accordingly, we anticipate that parties will error on the side of caution when considering which of the old and new Act's provisions will apply in any particular circumstance.
Under both the old and the new legislation, construction liens expire unless they are "preserved", usually by registration of a claim for lien and sometimes by "giving" the claim for lien to an owner. Under the existing Construction Lien Act, the liens will expire if not preserved within 45 days of a variety of triggering events: based on whether the claimant is a contractor or subcontractor, whether a certificate of substantial performance has been published, whether the contract for the improvement has been completed or abandoned and (in the case of a subcontractor) when the subcontractor last provided its services or materials to the improvement.
Under the new provisions effective July 1, 2018, a new "triggering" event has been added to the list of what will trigger the lien-expiry period. This is the "termination" of the contract. In this regard, the owner, contractor or "other person whose lien is subject to expiry" shall publish a notice of that termination in the same way a certificate of substantial performance is published. This gives notice - to anyone that might have an interest in the improvement - that the contract has been terminated and that lien rights are expiring. The requirement to publish the notice is mandatory. It is unclear how a subcontractor lien claimant, being an "other person whose lien is subject to expiry" will know of the termination.
Significantly, under the new provisions effective July 1, 2018 and, regardless of the triggering event, the lien-expiry period will now be 60 days. This is good news for the suppliers of services and materials as it gives them an additional 15 days to decide whether or not to preserve. This is particularly so because many contractors, trades and suppliers work on payment terms of 30 days or more.
Currently, anyone who has preserved a claim for lien must, within 45 days of the last day it could have done so, "perfect" the claim for lien. Perfection requires the commencement of an action to enforce the claim for lien and, if the claim for lien is registered against title to the premises, the registration of a Certificate of Action against the premises. Under the provisions that come into force on July 1, 2018, lien claimants will now have 90 days to perfect. Determining how, or if, a claim for lien is properly perfected can be very complicated. Accordingly, these issues are generally best left to experienced counsel. Counsel, however, will most likely already involved be if lien(s) have already have been preserved.
Under the new provisions, the lien holdback may in some cases be released either annually, or in phases. While this will help contractors and subcontractors to get paid earlier, lien rights can be lost against a part of the holdback security long before those lien rights expire. This is new and may have significant impacts if not managed properly.
Under the new provisions in force July 1, 2018, the construction lien holdback may be released either annually, or in phases, if the contract is for $10 million or more, where the owner and contractor agree to do so in the contract and where no unresolved liens have been preserved. Any unpaid suppliers of services or materials who are concerned about non-payment, at or around the time annual or phased holdback is to be released, will need to consider preserving a claim for a lien. If they do not, they will loose the security they would have had in the released holdback. Section 39 of the Act allows the suppliers or services or materials to ask the Owner and contractor if payment under the contract is to be released in phases.
In our next series of blogs, we will continue to review the changes that come into force on July 1st. These will be important to all participants in the construction industry in Ontario. We will also provide more information and details about the prompt payment and adjudication provisions which will come into force on October 1, 2019.
This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.