Canada: Ontario's Construction Lien Act: Second Special Client Update

On Wednesday May 31, 2017, Attorney General Yasir Naqvi introduced Bill 142 "An Act to Amend the Construction Lien Act" ("Bill 142") in the Ontario Legislative Assembly. Sharon Vogel, Bruce Reynolds and their team from BLG were pleased to attend the introduction of Bill 142 and the reception that followed, hosted by Attorney General Yasir Naqvi. Later that day, the Ministry of the Attorney General issued a news release and background information, which are both available online.

The Bill is the culmination of a unique consultative effort between the Ministry of the Attorney General, industry experts and industry stakeholders, whose common interest is to ensure a strong future for the industry in Ontario and to support ongoing and future large infrastructure projects throughout the province.

In commenting about the impetus for Bill 142, Minister Naqvi has said that:

"Construction is a critical, driving force of the economy, and we have been working hard to make sure this sector has the tools it needs to continue to thrive and prosper. These proposed changes will modernize our laws to reflect the needs of workers and businesses, and encourage job growth and investment."

Over the past two years, first with their work on their Report, Striking the Balance: Expert Review of Ontario's Construction Lien Act (the "Report") delivered on April 30, 2016 and then with their subsequent work on Bill 142, Bruce Reynolds and Sharon Vogel have worked closely with the government and industry groups to provide advice that captures the key concerns of the many people who work in this important sector. The amendments proposed in Bill 142 include 98 of the 101 recommendations Bruce Reynolds and Sharon Vogel had presented in their Report.

In particular Bill 142 reflects the three key objectives identified in the Report: 1) modernization of the construction lien, holdback and trust rules; 2) introduction of a prompt payment regime; and 3) introduction of an adjudication regime for the expedient resolution of construction disputes.

The modernization of the construction lien, holdback and trust rules includes the following amendments:

  • Express provision for the application of these rules to public-private partnerships;
  • Liens would no longer attach to municipal lands but rather would have to be preserved in the same manner as liens relating to projects located on Crown lands;
  • Where a landlord agrees to pay for all or part of an improvement to leased premises, the landlord's interest would be subject to a lien to a maximum of 10% of such payment;
  • New rules providing for the payment of holdback on an annual, phased, or segmented basis;
  • The mandatory release of holdback funds once all liens have expired if no liens are preserved and the owner has not delivered a notice of intention to set off;
  • The extension of the deadline for the preservation of liens from 45 days to 60 days;
  • The extension of the deadline for the perfection of liens from 90 days to 150 days;
  • New statutory trust funds bookkeeping requirements; and
  • Mandatory bonding on public and broader public sector projects where the contract price exceeds a prescribed amount.

The proposed new prompt payment regime is intended to ensure that contractors, subcontractors and workers benefit from shorter payment cycles and increased certainty related to payment for work and materials supplied. Practically speaking, owners would be required to pay general contractors within 28 days after the receipt of a proper invoice, contractors would be required to pay their subcontractors within 7 days after receiving payment, and subcontractors would be required to pay other subcontractors within 7 days after receiving payment. Unless a payer delivers a notice of non-payment within 14 days of receipt of an invoice, the invoice would be considered proper and the related payment mandatory.

The proposed new interim adjudication regime is intended to facilitate the swift resolution of disputes with respect to "proper invoices", the valuation of services or materials supplied, payment and notices of non-payment, set-off amounts or any other matter the parties agree to submit to adjudication. The adjudication process would be a process intended to avoid long drawn disputes and resulting cash-flow bottlenecks. The procedural steps would take place on an expedited basis, including the following:

  • An adjudicator would be appointed no later than 11 days after the delivery of a notice of adjudication (4 days for the parties to appoint an adjudicator in addition to 7 days where, in the alternative, it is necessary for the Authority designated by the Ministry of the Attorney General to appoint the adjudicator);
  • Within 5 days of the appointment of the adjudicator, the party who gave notice would deliver prescribed documents and information to the adjudicator;
  • The adjudicator would have to make a determination within 30 days after receiving the prescribed documents and information;
  • An adjudicator may request an extension of 14 days (or longer if so agreed by the parties) to make a determination, subject to the written consent of both parties.

Practically speaking, most disputes would be determined within 39 to 60 days, as opposed to several years under the current legislation.

The Attorney General has indicated that Bill 142 is intended to pass the second and third readings in the fall and come into force in 2018.

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