Our Summary of the Key Changes to the Construction Lien Act
The Construction Lien Act was first introduced in 1983, in an effort to protect contractors and suppliers and regulate how payments are made, to help ensure that workers who have provided services or materials during a construction project are paid for their work.
In an effort to modernize the original Construction Lien Act the Ontario government introduced Bill 142, the Construction Lien Amendment Act on May 31, 2017. The Bill introduced a mandatory prompt payment regime, a mandatory fast-track dispute resolution process, as well as various substantive changes.
On December 12, 2017, Bill 142 received Royal Assent and is now called the Construction Act. In order to provide sufficient time to prepare for these changes, the Ontario government has scheduled the reforms to take effect in two stages: technical amendments on July 1, 2018, and prompt payment and mandatory interim adjudication on October 1, 2019.
The key changes are summarized by implementation date below:
Effective July 1, 2018
Timelines relating to liens:
The period to register a lien will be extended from 45 to 60 days.
The deadline to start a lien action has been extended from 90 days after the day of last supply to 150 days. Release of holdback is mandatory the 46th day after substantial performance of a contract, if there are no liens. Therefore, 14 days after the holdback should be released, you will need to decide whether to lien.
The 45 days for perfecting liens will be extended to 90 days.
New provisions to better protect trust funds:
The requirement to place payments from the construction project into a trust account, by the recipient of the funds, should prohibit banks from “seizing” monies in those accounts.
Trustees under the Act must deposit trust funds into a bank account in the trustee’s name and must keep separate written records in respect of each trust for which it is responsible. Multiple trust funds may be kept in a single account, such that a dedicated trust bank account for each project is not required.
Mandatory labour and material payment bonds:
All contractors performing work under a public contract will be required to provide a labour and material payment bond and a performance bond, each for at least 50% of the contract price.
Holdback practice changes:
The changes to the substantial performance definition will allow for earlier certification and therefore, the earlier payment of holdback funds. The existing Construction Lien Act did not require the owner to pay the holdback, only to retain it. Contractors (someone hired directly by the owner) will be given the right to suspend work if payments are not made as required.
If a contract has several phases, holdbacks will be released on a phase by phase basis to ensure everyone can get their holdback funds earlier. If the contract does not have phases, but lasts for more than one year, holdback funds must be released each year.
Other technical changes:
When a section 39 request for information is sent to a mortgagee, and the mortgage funds were advanced in part to buy the land and in part for construction, the mortgagee must identify the amounts advanced under each segment.
Condominium common element properties will be assigned a separate PIN to allow a cheaper and more efficient way to lien common elements (without liening individual units).
Lien claims of less than $25,000.00 can be brought in Small Claims Court (where lawyers aren’t required).
IMPORTANT NOTE: New provisions will not apply to projects where the prime contract was entered into before the substantive changes come into force (or a bidding/procurement process will started before that day).
Effective October 1, 2019
Prompt Payment:
The owner is required to pay the general contractor within 28 days of receiving a proper invoice. A proper invoice from a contractor must include:
- The contractor’s name and address;
- The date and the period during which the services or materials were supplied;
- Information identifying the authority, whether in the contract or otherwise, under which the services or materials were supplied;
- A description, including quantity where appropriate, of the services or materials that were supplied;
- The amount payable for the services or materials that were supplied, and the payment terms; and
- The name, title, telephone number, and mailing address of the person to whom payment is to be sent.
A subcontractor must be paid by the general contractor within 7 days after the general receives payment from the owner.
If a payor doesn’t agree with all or part of an invoiced amount, the payor must give a formal written notice of non-payment together with an explanation and must still pay the undisputed amount.
Adjudication:
A new interim dispute resolution process will be established to resolve payments during a project. A qualified (ie. meeting Government standards) arbitrator/adjudicator appointed by the parties will determine the dispute quickly (usually within 1 month of being appointed). Until the end of the project the parties are bound by the adjudicator’s decision however, the decision can be reviewed after the project is over.
