Summary of Amendments to Construction Lien Act

by Dickinson Wright
Contact

Dickinson Wright

In December 2017, the Ontario Legislature passed the Construction Lien Amendment Act, 2017 (the "Act"). The Act introduces significant changes to Ontario’s construction lien regime and is intended to reduce delays in construction projects and establish a dispute resolution mechanism to keep construction lien actions out of the courts. What follows is a summary of the major changes introduced by the Act, as well as information regarding the timeline for implementing these changes.

When the Changes Take Effect and Transition Rules

Minor amendments and small changes to the French language version of the Act took effect on December 12, 2017. Substantive changes will only take effect upon proclamation of the Act. Before any of the significant amendments can be implemented, corresponding regulations must be developed. A first draft of the regulations is expected to be made public in February 2018. It is expected that the amendments that pertain to the lien and holdback process will be implemented first, followed later by the amendments pertaining to prompt payment and adjudication.

The previous Construction Lien Act will continue to apply, with respect to an improvement, if:

  • a contract for the improvement was entered into before the day on which the Act is proclaimed to be in effect, regardless of when any subcontract under the contract was entered into;
  • a procurement process, if any, for the improvement was commenced before the day on which the Act is proclaimed to be in effect by the owner of the premises (including the making of a request for qualifications, a request for proposals or a call for tenders); or
  • the premises is subject to a leasehold interest, and the lease was first entered into before the day on which the Act is proclaimed to be in effect.
  • Parts I.1 (Prompt Payment) and II.1 (Adjudication) apply in respect of contracts entered into on or after the day subsection 11 (1) of the Construction Lien Amendment Act, 2017 (i.e. the adjudication provisions) comes into force, and in respect of subcontracts made under those contracts.

Prompt Payment

The new prompt payment rules will prescribe automatic deadlines for payment to contractors and subcontractors once the payee submits a Proper Invoice. The Act defines a Proper Invoice as:

…a written bill or other request for payment for services or materials in respect of an improvement under a contract, if it contains the following information and, subject to subsection 6.3 (2), meets any other requirements that the contract specifies:

  1. The contractor’s name and address.
  2. The date of the proper invoice and the period during which the services or materials were supplied.
  3. Information identifying the authority, whether in the contract or otherwise, under which the services or materials were supplied.
  4. A description, including quantity where appropriate, of the services or materials that were supplied.
  5. The amount payable for the services or materials that were supplied, and the payment terms.
  6. The name, title, telephone number and mailing address of the person to whom payment is to be sent.
  7. Any other information that may be prescribed.

An owner is required to pay a contractor within 28 days of receipt of a Proper Invoice. A contractor who receives full payment is then required to pay each subcontractor who supplied materials or services which were included in the Proper Invoice within 7 days. The subcontractor has the same 7 day deadline to pay and so on down the construction pyramid. Any failure to pay by a party, at any level of the pyramid, will result in automatic interest accruing, in accordance with the rate prescribed under s. 127(2) of the Courts of Justice Act, from the date on which the payment was due to be paid.

An owner, contractor or subcontractor can submit to the payee a Notice of Non-Payment no later than 14 days after receiving a Proper Invoice. The regulations prescribing the form of Notice of Non-Payment have not been promulgated at this time, but at a minimum the notice must state the amount in dispute and the reasons for non-payment. A contractor who receives a notice of Non-Payment or partial payment from the owner is required to pay any subcontractors within 35 days, unless the contractor gives the subcontractors a Notice of Non-Payment within seven days of receiving the notice of non-payment from the owner.

The concept of the Proper Invoice is key to the new prompt payment regime. If the contract between the parties is silent, Proper Invoices are presumed to be due on a monthly basis. The parties may agree otherwise, such as making Proper Invoices due at certain milestones in the contract or as certain conditions are met. The parties cannot make the owner’s approval a condition precedent to the submission of a Proper Invoice.

Adjudication

The Act adds a mandatory dispute resolution scheme to which parties to construction contracts must adhere. The scheme is intended to more quickly resolve certain issues that typically arise and slow down the construction process, so projects can continue with minimal disturbance. The Act outlines that the following matters are appropriate to be decided under the scheme:

  • value of services or materials under the contract;
  • payment under the contract or change of services under the contract;
  • non-payment disputes arising under the prompt payment regime;
  • set-off amounts;
  • payment or non-payment of holdback amounts

The Act also permits the parties to bring other matters to adjudication and permits the regulators to add other matters to the list.

Adjudicators will be individuals selected by the Authorized Nominating Authority to be established under the Act. The party bringing the matter to adjudication has the opportunity to suggest an individual to resolve the matter; parties cannot choose an adjudicator in the contract in advance. If the adjudicator requested by the party bringing the dispute to adjudication does not agree to hear the matter within four days of the request being submitted, the requesting party must ask the Authority to appoint an adjudicator. The Authority shall do so within 7 days of receiving the request.

Parties may define their own adjudication rules or requirements, provided they comply with the minimum requirements set out in the Act. Parties may not begin the adjudication process after the contract has been completed, unless they have consent of the other party.

The adjudicator is given wide investigatory powers under the Act. The first investigative tool is the requirement that the requesting party provide a copy of the contract and any documents they intend to rely on to prove their claim within 5 days of the adjudicator’s appointment. The adjudicator is required, subject to the extension provisions in the Act, to provide a decision on the matter within 30 days of receiving the above documents from the requesting party.

 In making its determination, the adjudicator may:

  • outline and define the rules and conduct of the adjudication;
  • determine questions of fact and law;
  • draw inferences from the conduct of parties to the adjudication;
  • conduct on-site inspections, subject to the approval of the owner and anyone from whom consent is required;
  • obtain assistance from third party experts; and
  • utilize any other power as prescribed by the regulations.

The fees associated with adjudication are to be split by the parties, regardless of the outcome. Each party is to bear their own costs.

The decision of an adjudicator is enforceable by court order. There is no appeal route for an adjudicator’s decision under the Act. Judicial review may be sought, with leave of the Divisional Court. Such application for review must be filed within 30 days of the adjudicator’s decision. Section 13.18 (5) of the Act the grounds on which the decision of an adjudicator may be set aside on judicial review to one or more of the following:

  1. The applicant participated in the adjudication while under a legal incapacity;
  2. The contract or subcontract is invalid or has ceased to exist;
  3. The determination was of a matter that may not be the subject of adjudication, or of a matter entirely unrelated to the subject of the adjudication;
  4. The adjudication was conducted by someone other than an adjudicator;
  5. The procedures followed in the adjudication did not comply with the procedures to which the adjudication was subject, and the failure to comply prejudiced the applicant’s right to a fair adjudication;
  6. There is a reasonable apprehension of bias on the part of the adjudicator;
  7. The determination was made as a result of fraud.

Alternative Financing and Procurement

The Act adds clarification for circumstances where the financier and owner are separate entities. Clarifications to the definitions of owner and contract now aid in determining which owner or contract governs for the purposes of the Act. In public projects, rather than have the Crown act as the owner for the purposes of the Act, now the special purpose entity which is controlling the project on behalf of the Crown is deemed to be the owner and the agreement between the special purpose entity and the contractor is deemed to be the contract to which the Act applies. These deeming provisions are limited in their application and only apply to certain portions of the Act (prompt payment, adjudication, declaration of substantial performance). For other sections of the Act, the Crown may continue to be the owner as defined in the Act.

The Act also allows for projects that incorporate multiple construction sites and facilities, whose contracts were all bundled under one contract or agreement, to be administered as if they were separate and distinct improvements. This would allow contractors at one site to be paid earlier and at different times than other sites. The parties may define certain phases of construction, the completion of which allows payment to be made to individual sites. Each phase should be defined in the contract between the parties, placing a heavy onus on the parties to contemplate a through timeline for the project in the initial contract.

Trust Accounting

The Act imposes much more detailed record-keeping on parties in the construction pyramid who are in control of trust funds. The bank account into which funds are deposited must bear the name of all trustees. The trustee(s) must keep written records of any amounts deposited into or paid out of the trust account, any transfers made for trust purposes and any other record-keeping information prescribed by the regulations. As long as the trustees are the same, there is no requirement to maintain a distinct and separate trust account for each project, and funds from multiple trusts may be deposited into one trust account.

Additional Amendments

 The Act introduces the following notable amendments, in addition to those outlined above:

  • the timing for preserving a lien is extended from 45 to 60 days;
  • the 45 day deadline for perfecting liens is extended to 90 days from the last day on which the lien could have been preserved;
  • termination of the contract will now begin the timer for lien preservation;
  • contractors performing a public contract, as defined by the Act, will be required to provide two bonds, each for at least 50% of the contract price; one bond for labor and material payment and the other for performance;
  • holdbacks may be kept in the form of credit letters, bonds or other forms rather than simply cash;
  • the definition of Improvement now includes a Capital Repair;
  • construction claims for less than $25,000 must now be brought in Small Claims Court;
  • liens no longer attach to municipal lands;
  • basic and finishing holdback amounts must be released once the requirements for such release under the Act are satisfied; and
  • the parties may agree to annual, phased or segmented holdback releases provided that there are no outstanding, registered liens.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dickinson Wright | Attorney Advertising

Written by:

Dickinson Wright
Contact
more
less

Dickinson Wright on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.