Phase One of Ontario’s new Construction Lien Act is in effect

Ontario Construction Lien Act has a new name. It’s now called the Construction Act. Phase One took effect on July 1, 2018. Phase Two, the more controversial part, takes effect in October 2019. Note: If you’re not from Ontario, don’t tune out — the legislation is being closely watched by other provinces like yours!

Is anything grandfathered?
Yes. Contracts entered before July 1, 2018are not affected, even if subtrade contracts were entered into after that date. In fact, pretty much anything before July 1, 2018 is unaffected, including RFQ’s and RFP’s requested prior to that date, and leasehold interests in cases when the lease was entered into prior to July 1, 2018.

What changes now versus later?
Aside from public sectors contracts, the changes relate mostly to holdbacks and lien periods.

Has the lien period changed?
Yes. It is now extended from 45 days to 60 days. Both the contractor and trades now have the right to lien.

Does this impact holdback payments?
It is now mandatory for the owner to release any holdbacks when the lien deadline expires. However, the exception is if the owner publishes a notice of non-payment on the prescribed form within 40 days of the publication of the certificate of substantial performance, and notifies the contractor of the publication. However, since the 40 day publication date is before the lien expiry period, failure to pay the holdback will almost guarantee a lien and further legal dispute.

Furthermore, holdbacks can be based on a milestone, annual, or phase completion basis. However, this won’t impact most home building projects since these provisions are meant to apply to contracts greater than $10 million.

What about trust monies?
Trust funds must be deposited into a bank account in the trustee’s name. There must be a written record kept all trust activity.

Are there changes tot he calculations to the monetary thresholds in the formula for determining substantial performance?
The calculation is now three per cent of the first $1 million, two per cent for the next $1 million, and one per cent for any remainder.

What if there are events that the contractor cannot control, like delays with owner financing?
The term “price” has been revised to include any direct costs incurred by the contractor that are not caused by the contractor. These can now be included in a lien.

What’s next?
It’s a relatively mild start to what ultimately will be substantial changes to the way construction contracts are undertaken in the future. Phase Two, scheduled for enactment in October 2019, will see much greater change to Ontario’s Construction Act. We’ll come back to that when more interpretation is available. As always, contractors in Ontario are advised to consult with their legal advisers in terms of their standard contracts with clients. As for the rest of Canada, stay tuned!

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