Canada: Proposed Changes To Ontario's Construction Lien Act

The Construction Lien Act can be a daunting piece of legislation to approach. Combining tight deadlines, technical definitions, and a sometimes complex interplay between its own provisions, it is no wonder that it is often viewed with some trepidation by lawyers and clients alike. Leave is required for a number of interlocutory steps, including rights of discovery and exchange of documents, and fights over the timeliness of liens are frequent. Two or more pre-trials are common. Indeed, one of the more commonly made remarks about the Act is that despite it being explicitly intended to resolve matters in a summary fashion, it does not often do so in practice.

Some months ago, an expert review of the Construction Lien Act was provided to the Ministry of the Attorney General of Ontario detailing ongoing concerns and views with respect to both the language and implementation of that Act. As detailed on our website in an earlier article, several notable recommendations were made to the Ministry as to how the Act ought to be changed. It appears that legislators have sat up and listened as a Bill to overhaul the Construction Lien Act has recently passed its first reading before the Legislative Assembly. These changes, if ultimately passed, will be a welcome change to a piece of legislation that has (in this lawyer's opinion) caused more arguments than it has solved.

It should be noted that the first amendment in the Bill is a change of name of the legislation to the Construction Act. For ease of reference in this article, the current version and the newly proposed version will be referred to as "the Act" interchangeably. Below is an overview of some of the more prominent changes along with brief comments on how they may affect lien litigation going forward.

  1. Lien timing

    Current Version: Liens expire 45 days after completion or abandonment of the contract. Preserved liens expire 45 days after the last possible preservation date, unless perfected by issuing a Statement of Claim and registering a Certificate of Action on title.

    Amended Version: The deadline to register the initial lien is increased to 60 days and the deadline to perfect it afterwards is increased to 90 days, making a 150 day total period within which to preserve and perfect. "Termination" is added to the list of conditions that triggers the lien clock.

    Comments: Likely one of the changes of highest interest to all parties involved in a construction project. Often, contractors wait to receive payment, negotiate with an owner, seek out a lawyer, and eventually register their lien. In the meantime, the clock continues ticking from the completion or abandonment leaving little time to get documents in order and preserve the lien. This change will give some relief to those who scramble to get everything done in time.

    However, this extension not only prolongs some of the tight deadlines faced by contractors to preserve their liens but also affects other provisions which rely on the date of the expiry of the liens. Notably, the release of holdback is likely to also be extended, meaning that contractors will now have to wait longer to receive full payment for their work.

    The inclusion of "termination" will assist in situations where the contract was not completed and where abandonment by one party is vague. Previously, only completion or abandonment by the contractor would begin the clock. Grey areas existed, particularly for small-scale construction contracts between an owner and a single contractor, of when the clock starts where the work is not complete but work has stopped due to non-payment of invoices. With the amendment, in cases where the contract is terminated early by one party - perhaps by a repudiatory breach through non-payment - the clock will start.

  2. Repeal of Lien procedures

    Current Version: lien claims were subject to the procedures set out in the Act, including leave requirements for Third Party Claims, no mandatory discovery, no mandatory documentary disclosure, etc.

    Amended Version: lien claims will be subject to the Rules of Civil Procedure and Courts of Justice Act, unless they conflict with specific provisions of the Act

    Comments: Another important change. The reality is that in attempting to achieve a "summary" character for the current Act by instituting leave requirements for discovery and other intermediate steps, the legislature has actually created more procedural steps by way of motions for leave — the vast majority of which are granted. Introduction of the Rules of Civil Procedure to the matter will allow for the ability to fully explore the allegations of each side through the discovery process, an important step where allegations of deficient work, delay, extras to a contract, etc. are being put forward.

  3. Increase of measure for deemed completion of a contract

    Current Version: The contract will be deemed to be completed when the cost of completion is not more than the lesser of 1 percent of the contract price or $1,000.

    Amended Version: The measure is increased to the lesser of 1 percent of the contract or $5,000.

    Comments: Deemed completion of the contract is a measure sometimes used to determine the effective last day worked on a project. This then determines the start of the clock for the lien timeline. Increasing the measure means that projects could be deemed to be complete earlier than previously. Note that the measure for substantial performance of a contract has been increased as well which will affect the timing of the certificate of substantial performance of the contract. This may also allow for the clock for liens to begin earlier on certain projects.

  4. Introduction of Prompt Payment regime

    Current Version: Silent on the timing and payment of invoices

    Amended Version: Invoices are to be issued to the owner by the contractor on a monthly basis, unless otherwise agreed. These invoices are to include prescribed information and a 28-day clock for payment will begin once they are provided. In the event of payment, the contractor has seven days to pass payment along to subcontractors included in the initial invoice, In the event of non-payment, the contractor is to notify the subcontractors that payment was not received. These same deadlines apply to the subcontractors as the payments flow down the construction pyramid. In the event of non-payment, interest begins to apply on unpaid amounts following the 28-day deadline.

    Comments: This is a big change. Introducing formal requirements for the issuing and payment deadlines for invoices may be a challenge, particularly in an industry where informality, handshake deals, and shoddy paperwork is all too common. While these requirements make sense in the context of a large scale project, it would be interesting to see to what extent they will be enforced in smaller-scale projects like home renovations or landscaping contracts.

  5. Adjudication

    Current Version: Silent on adjudication

    Amended Version: One party may refer a dispute on the valuation of materials/services, contract payment, change orders, disputes of non-payment, set-off, and non-payment of holdback to an adjudicator. The adjudicator then reviews relevant documents, makes a potential site visit, and hears the positions of the parties. He or she will then issue a determination which is binding upon the parties "until a determination of the matter by the court or... by way of an arbitration..." The determination can later be converted to a formal court order.

    Comments: Another big change. This appears to be an attempt to quickly resolve disputes in an ongoing work site and as an alternative to registration of a lien. An owner, contractor, or subcontractor can unilaterally invoke this process at any time prior to completion of the contract and will likely allow for avoidance of the delays associated with a lien being registered mid-contract. Combining characteristics of mediation and arbitration, this is likely to be a favoured strategy by owners facing work stoppages due to payment disputes. All parties will have the relief of knowing that if they are not satisfied with the results of the adjudication, any court decision on the issue at a later time will act to override the adjudicator's decision.

  6. Definition of "improvement" to explicitly exclude maintenance work

    Current Version: "repairs" are considered to be an improvement which can become the subject of a claim for lien. However, this definition allowed for the possibility that all acts of ongoing maintenance, including the work of property management companies, routine lawn care, snow removal, air filter cleaning, etc., could be lienable.

    Amended Version: improvements include "capital repairs" which are any repairs intended to extend the normal economic life of the property or which improve the value or productivity of the land. It does not include preventative maintenance work.

    Comments: This appears to narrow the scope of the sort of work which could be captured in a lien. Without using the terminology, it seems that acts of ongoing maintenance/repair which are not intended to provide a permanent improvement to the land or its buildings cannot be liened. For example, repairs to a flooded unit in an apartment building is lienable; weekly grass cutting is not.

  7. Municipal liens

    Current Version: Liens do not attach to property owned by the Crown

    Amended Version: Liens do not attach to property owned by the Crown or a municipality

    Comments: An amendment of interest to those contractors who routinely perform work on municipal projects.

  8. Payment of holdback

    Current Version: Holdback payments may only be made following expiry of the lien preservation period

    Amended Version: Holdback payments may be made on an annual basis or on a phased basis, subject to certain contract conditions. Holdback payments are also now mandatory following the completion of the contract for which the holdback applies and expiry of the lien preservation period.

    Comments: Rather than having to wait until the end of the expiry of all potential liens, this will allow holdback payments to be released to contractors and subcontractors at earlier times than previously and gives mandatory language to the timing of the ultimate holdback funds release. In particular, this will be of appeal to designers and other subcontractors whose work is completed early in the construction timeline.

  9. Referral to the Small Claims Court

    Current Version: Lien matters could be not be referred to the small claims court

    Amended Version: Lien matters can be referred to the small claims court in the event they fall within its monetary jurisdiction

    Comments: It is still unclear if paralegals or articling students would be permitted to take on lien matters which had been referred to the small claims court as they would still technically be superior court matters which had been "referred" but not transferred. Certainly there would be a benefit to all parties to have a relatively small lien claim dealt with by way of the summary procedures and lower costs associated with the Small Claims Court.

It should be noted that the above are only a sample and general overview of some of the more major changes being potentially introduced. Many more amendments have been included and a full analysis of those could fill volumes. It remains to be seen how these and any further amendments will affect the actual practice of lien claims and the effect it will have on the industry as a whole.

See related article from October 2016: Expert Review of Ontario's Construction Lien Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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