Canada: Constructive Construction – Serious Legal Changes

Last Updated: July 25 2018
Article by Jonathan Wigley

Sweeping reforms to the Construction Lien Act received Royal Assent in December 2017. The law of construction liens and payments has been modernized and updated and a "prompt payment" system has been adopted to get cash flowing more quickly. A substantial number of the changes came into effect on July 1, 2018.

Even the name of the Act has been changed to the Construction Act to further underscore that the changes go well beyond traditional construction liens. It is however quite safe to say that lien issues have not become any simpler under these amendments and arguably more complex.

In order to allow members of the construction industry time to adjust to the changes, Ontario has scheduled the changes to take effect in two stages; July 2018 and October 2019

Changes in force as of July 1, 2018

Construction Lien and Holdback Rules

The following important amendments to the construction lien and holdback rules are now in effect:

  • Holdback amounts will remain at 10% of the value of the improvement. However, security in the form of a holdback bond or letter of credit can be given rather than cash alone.
  • Contractors and subcontractors have 60 days to register a lien and 90 days to start a court action;
  • A contract will now be deemed "completed" at an earlier stage as the threshold for completion will be increased to the lesser of 1% or $5,000 of the contract price, rather than the previous $1,000.
  • Release of the holdback is mandatory once the time to register a lien has passed. Holdback is released 45 days after substantial completion. An owner can set off or withhold but has to publish a notice of non-payment or set off within 40 days after substantial performance.
  • Holdback release can also be staged; either on an annual basis for longer term projects, if the project is over $20 million and the early release of holdback is set out in the contract; or on a phased basis, for projects with different stages of completion.
  • Contractors and subcontractors have to follow specific bookkeeping rules to protect subcontractors in the event of bankruptcy. On new projects post July 1, 2018, trust funds are to be dealt with by way of separate accounting unless the project payments are kept in a segregated bank account.
  • Public sector owners, such as the Crown, municipalities and broader public sector organizations, will be required to have a surety bond on public contracts above $500,000, and alternative financing and procurement arrangements (AFPs) will be subject to a minimum coverage limit (50% of the contract if the contract is less than $100 million - $50 million if the contract price is above $100 million) to protect subcontractors and workers if the general contractor files for bankruptcy;
  • Condominium unit owners will be allowed to remove liens from their unit that are related to improvements to the common elements, such as corridors, lobbies, the garage and the roof;
  • Parties may request that a judge refer construction lien claims under $25,000 to the small claims court;
  • Project owners and other payers will be required to pay contractors and subcontractors holdbacks once the timeline to file liens has passed (the 60 days). This helps contractors and subcontractors plan, accept contracts for new work and have more certainty about when the holdback will be paid;
  • On termination of a contract, the terminating party publishes a "notice of termination" in a construction trade newspaper. A copy of the notice is to be sent by the contractor to its subcontractors;
  • Liens for under $25,000 can be dealt with in the Small Claims Court. Appeals are also changing. Now interim type orders can be appealed with permission of the court and final orders can be appealed as of right without have to seek court permission;
  • If a contractor is working on a tenant's premises and the work is being paid for by the landlord, the contractor will now have an automatic lien right against the land (not the tenant's interest). As a result, if a Landlord pays for a tenant's improvements, the landlord has lien exposure to the extent of the usual holdback; and
  • The amount of security for costs that must be posted to vacate a lien has increased.

Changes in force as of October 1, 2019

Prompt Payment System

The new prompt payment system will require that everyone involved in a project, from owners to subcontractors be on their toes. It will probably put considerable pressure on smaller contractors and subcontractors who may have little in the way of administration.

The following amendments to paying for construction services will come into effect on October 1, 2019. These are significant.

  • The contractor must submit invoices to the owner on a monthly basis, unless the contract specifies otherwise;
  • Subject to holdbacks, owners must pay general contractors within 28 days after receiving the invoice. The parties to a contract can set their own payment schedules, or other payment structures but it must be clearly laid out in their contract. The 28 day deadline will start once an invoice is submitted per the payment structure;
  • General contractors must pay subcontractors seven days after receiving payment from the owner. This is going to put a lot of pressure on the GC's accounting department;
  • Subcontractors must pay their subcontractors within seven days of receiving payment from whomever hired them for the project and so on; and
  • Contractors and subcontractors will have a right to charge mandatory interest on late payments beginning when the amount is due. Interest would be the prejudgment rate determined under the Courts of Justice Act (approximately 3% or so now) or the rate set out in the contract or subcontract, whichever is higher.

Payment Disputes

Running in parallel with prompt payment is prompt dispute resolution. The following amendments to payment disputes will also come into effect on October 1, 2019.

  • Owners may deliver a notice of non-payment to the contractor within 14 days of receiving the invoice from the project owner;
  • Contractors may deliver a notice of non-payment within seven days to the subcontractor; and
  • Subcontractors may deliver a notice of non-payment within seven days to other subcontractors they hire.

Adjudication Process for Resolving Disputes

The following amendments to resolving payment disputes will come into effect on October 1, 2019. This may over time become the normal mechanism for resolving lien issues rather than the courts which are slow and expensive.

  • The Construction Act implements a new adjudication process to give people and businesses in the construction industry an alternative to the court system to resolve disputes. The key features of the system are;
    • Adjudicators will be experts with extensive experience in the construction industry and experience or training in dispute resolution;
    • A private body, known as an Authorized Nominating Authority (ANA), will develop and oversee training and qualification for adjudicators, maintain a registry of qualified adjudicators, and perform other functions outlined in the legislation and a new adjudication regulation;
    • Disputes will be heard by an adjudicator from the registry of adjudicators, who may be selected by the parties themselves or by the ANA if they can't agree;
    • The parties and the adjudicator may agree to the fees of the adjudicator. If they cannot agree, the fees will be determined by the ANA;
    • The adjudicator will issue a determination in approximately six weeks, which will be binding on the parties, on an interim basis, until the dispute has finally been resolved in court or arbitration, or by agreement of the parties. If the parties are satisfied with the determination, they may agree to treat it as final.
  • If, after adjudication, the party owing money refuses to comply with the determination, the party that is owed the money is entitled to:
    • Stop work under the contract;
    • Charge mandatory interest on late payments;
    • Enforce the adjudicator's determination by filing a certified copy in the Superior Court of Justice (ie effectively a judgment). (Once filed the creditor can file a writ of seizure and sale with the Sheriff which in the case of dispute with the owner will attach to the property).
  • The adjudicator's determination cannot be appealed but may be challenged on certain limited grounds (i.e. adjudicator bias).

Transition Rules

The Act's changes won't be felt immediately. The amendments that took effect on July 1, 2018 will apply to all contracts entered into on or after that day, unless:

  1. The procurement process for the improvement was commenced before that day; or
  2. The premises is subject to a leasehold interest and the lease was entered into before that day.

In the above two situations, the old Act still applies.

Amendments taking effect on October 1, 2019 apply to all contracts entered into on or after that day, with no exceptions.

What's Next?

The Ministry of the Attorney General is developing a system to select a private body to be designated to act as the ANA. This process should be completed by the fall of 2018 and the body selected will undertake preparatory work in order to be begin regular operations of the ANA on October 1, 2019.

For businesses involved in work in buildings and construction projects these changes need to be considered and understood. Staff, particularly in accounting departments, will need to be familiar with the prompt payment scheme when it comes into effect.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Jonathan Wigley
Similar Articles
Relevancy Powered by MondaqAI
Goldman Sloan Nash & Haber LLP
Fogler, Rubinoff LLP
Gowling WLG
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Goldman Sloan Nash & Haber LLP
Fogler, Rubinoff LLP
Gowling WLG
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions