It has been almost two years since the first wave of changes to Ontario’s Construction Lien Act (now called the Construction Act) (the “Act”) came into force and modernized the province’s lien and holdback rules.
As the dust settles and the construction industry continues to adjust to, among other things, new timelines for liens, monetary thresholds and changes to the form and release of holdback, owners, contractors and subcontractors alike may face uncertainty with respect to navigating and determining their lien rights and responsibilities.
Accordingly, parties at all levels of the construction pyramid should consider turning their minds to the following:
i) The date of the contract matters
When determining lien rights and responsibilities, the first consideration for parties to a construction contract should be the date of the primary contract for the improvement (i.e. the contract with the owner of the lands).
The former Construction Lien Act continues to govern subject contracts entered into before July 1, 2018 and/or subject procurement processes (including Requests for Quotations, Proposals and Tenders) issued prior to July 1, 2018. This means that if the contract at issue was entered into before July 1, 2018, parties to a construction contract should refer to the Construction Lien Act in regards to, among other things, timelines for registering and perfecting liens as well as holdback form and release to ensure they are properly informed of lien obligations and/or aware of their lien rights.
ii) If the Act applies – there’s more time to lien
If the subject contract was entered into after July 1, 2018, contractors and subcontractors have a time period of 60 days to register a lien (extended from 45 days under the Construction Lien Act). The deadline to perfect a lien was also extended from 45 to 90 days after the last date that the lien could have been preserved. From a practical standpoint, subcontractors who cannot ascertain the date of the procurement of the project or the primary contract ought to act as if the 45-day time limit applies when considering a lien to ensure they do not mistakenly allow their lien rights to expire. The opposite assumption could be applied to owners with respect to their holdback release obligations. If unsure of which act applies, it may be safer to presume the new 60-day timeline applies before releasing holdbacks.
iii) Be aware of the increased monetary threshold
From July 1, 2018 forward, the monetary threshold for achieving completion of a contract will increase to $5,000 (marking an increase from the $1,000 threshold as per the Construction Lien Act).
iv) Revisit the meaning of “substantial performance”
Under the Act, substantial performance will be achieved when the improvement to be made pursuant to a contract is ready for use or is being used for the purposes intended and is capable of completion at a cost of no more than three percent of the first $1,000,000 of the contract price, two percent of the next $1,000,000 and one percent of the balance.
iv) Be aware of changes to holdback form and release
Parties to a contract entered into after July 1, 2018 may opt to satisfy the holdback by way of a letter of credit or holdback repayment bond as opposed to the form of funds.
Parties at all levels of the construction pyramid are also urged to review contracts entered into after July 1, 2018, specifically with respect to the terms of holdback release. Under the Act, parties to a contract may agree to release part of the holdback on a phased or annual basis as long as:
a) the completion schedule for the subject project exceeds a year;
b) the contract price is greater than the prescribed amount under the regulation ($10,000,000 or more); and
c) no liens have been registered (that have not been discharged or vacated).