Under construction: Anticipated changes to Ontario's Construction Lien Act

With the recent release of the report and recommendations from Ontario's expert review of the Construction Lien Act, it appears that the 33-year wait to reform the act will soon be over.

The province's independent expert review focused on how the act could be modernized to meet the present and future demands of the construction sector. It considered the act's ability to achieve current policy objectives, and examined the issue of prompt payments and the effectiveness of dispute resolution under the act.

It's anticipated that the proposed reforms to the Ontario Construction Lien Act will come into effect in spring 2017. Outlined below are the key changes that construction industry participants need to know about.

Greater lien rights

• The definition of "improvements" will be expanded to include capital repairs that extend the normal economic life of a structure
• The supply of IT services, material, software and equipment will now be lienable
• Several other definitions were updated

Longer lien rights

• The deadline to lien will be extended from 45 to 60 calendar days
• Termination will now be a trigger to lien, and the time to sue will be extended to 90 days from the last day to lien - not the last date of supply
• Frivolous, vexatious or abusive liens will be a discharged in whole or in part
• Common elements registered in a condominium will have a single PIN
• Liens on leasehold property will attach to the interest of the landlord if the landlord funded the improvements through a cash allowance or otherwise required the improvement

Same holdback, better substantial performance

• Holdback will remain at 10% of the value of the improvement
• Substantial performance financial threshold tiers will increase from $500,000 to $1,000,000
• Total completion will be increased to lesser of 1% or $5,000
• Release of holdback will be mandatory; the owner will be required to publish a notice of non-payment/set-off to interdict the obligation to pay holdback where the owner in good faith intends to assert set-off

Improved functionality

• Construction liens will be case-managed
• Leave will be eliminated for interlocutory steps
• It will be possible for liens and trust claims to be tried together
• Liens will have the potential to be tried in Small Claims Court
• Minor errors to liens will be more easily cured
• Forms will be standardized and added to, including written Notices of Lien

Public projects

• All public sector projects will be required to be surety bonded for the protection of sub-contractors and suppliers from the risk of contractors' insolvency
• A standard form surety bond would be created and all sureties are to pay any undisputed amounts within a reasonable time after receipt of a payment bond claim

Payment will be prompt

• Prompt payment will be legislated in Ontario and applied to both private and public sector projects down the contract stream, triggered by delivery of a proper invoice
• The general contractor will have 28 days to pay a contractor, and a contractor will have seven days to pay a sub-contractor after being paid
• The parties will not be able to freely contract out of the prompt payment provisions, but will be permitted to establish milestones or other payment structures that are not monthly
• Payors will be permitted to deliver Notice of Intention to Withhold Payment within seven days following receipt of a proper invoice for set-offs and deficiency holdbacks, but undisputed amounts should be paid; set-off would only be in respect to the same contract and not for unrelated contracts

Adjudication: decisions on the spot

• Parties to a construction contract will be entitled to refer disputes to adjudication (based on the U.K. model) that flow from a proper invoice under a contract, including claims for valuation of work, services and materials and other monetary claims made in accordance with the contract, as well as set-offs, deductions and delay claims
• Parties will be free to contract out of this provision so long as provisions are consistent with the act
• The act would set minimum standard for adjudicators; the decision of the adjudicator shall be binding on the parties and enforced by way of application to the Superior Court, much like under the Arbitration Act - but a party's right to preserve and perfect a lien shall not be affected

Bountiful bonds

• Surety bonds will be required for all public sector projects
• All sureties will be required to pay any undisputed amounts within a reasonable time after receipt of a payment bond claim

More information

Members of Gowling WLG's Construction & Engineering Group are well-placed to advise on the anticipated changes to Ontario's Construction Lien Act. For assistance, feel free to contact:

• Neil Abbott, Toronto - +1 416 862 4376, neil.abbott@gowlingwlg.com
• Ted Betts, Toronto - +1 416 369 7106, ted.betts@gowlingwlg.com
• Ross Earnshaw, Waterloo Region - +1 519 575 7525, ross.earnshaw@gowlingwlg.com
• Louis-Pierre Grégoire, Ottawa - +1 613 786 0110, louis-pierre.gregoire@gowlingwlg.com