What are the most significant changes to the Construction Lien Act proposed by Bill 142, and how will they affect your business?
- The bill is now law. However, most of its provisions will not take effect until later in the first quarter of 2018, as regulations and prescribed forms are completed.
- Furthermore, improvements and contracts that were commenced prior to the new act will continue under the former Act provided that they can meet a threshold test of “commencement”. This makes sense because those parties drafted their contracts under the previous regime. It is also noted that grandfathered parties will not be grandfathered with respect to prompt payment provisions in the new legislation. Those provisions will apply to all contracts.
What are the most significant changes in Bill 142?
- Time for Perfecting Liens – extended from 45 days to 60 days (Note: the manner in which the time periods are calculated has not changed)
- Time for Preserving Liens – extended from 45 days to 90 days (Again, the manner in which the time periods are calculated has not changed)
- Provisions introduced to allow for phased payment of holdbacks on larger projects of significant duration
- Provisions introduced to confirm that payment of holdback upon expiry of lien claims is mandatory – previously indicated Owner could pay holdback without jeopardizing obligations with respect to holdbacks, once liens had expired – now have obligation to pay holdback at that point
- Provisions introduced to deal with liens against leasehold interests
- Prompt Payment System:
- Mandatory adjudication of where a dispute involves a “Proper Invoice” – A valid notice of non-payment must be accompanied by an undertaking to refer the matter to adjudication within 21 days of receipt of the Notice
- Adjudication process introduced for other disputes where determination of adjudicator may be enforced as an order of the court. Available to either party – at discretion of one or more of the parties to the contract – once a party initiates adjudication of a dispute – other party bound to participate; process has clear timelines and limited rights to extend it.
- Where a lien is preserved but not yet perfected and the substance of the lien action has been referred by one of the parties to adjudication, the period in which to perfect the lien is extended to 45 days following the delivery of all documents required to be delivered to the adjudicator in support of the dispute. This is premised on the fact that the adjudication timelines allow for 30 days from receipt of such documents to a decision on the matter – such that there would be fifteen days remaining thereafter (barring agreed extensions) in which to perfect the lien. The maximum period of any extension is 14 days and thereafter any determination made is not binding on the parties. In absence of a decision by day 44 an action would have to be commenced to avoid potential prejudice in the enforcement of the lien.
- Adjudication does not eliminate recourse to the court or to arbitration. An arbitrator can “can consider the merits of a matter determined by an adjudicator”. Recourse to the courts on an adjudicator’s decision is to the Division Court on leave and can only be overturned on limited grounds. The SPPA does not apply. It is not clear how this will work in terms of perfected liens. If one party refers the lien matter to adjudication and a decision is given within the time prescribed that decision will determine the matter short of an application to leave to divisional court, and the superior court would not have jurisdiction where an adjudication has taken place;
- Changes dealing with P3’s, including “who is the owner” on P3 projects,
- Changes to the trust set off provisions – whereby set off as between projects will no longer be permitted except in cases where the contractor with the trust claim has become insolvent
- Contractor includes a Joint venture entered into for the purpose of improvements
- Improvement is now defined to exclude ordinary maintenance and repair and to include repairs of a “capital nature” – i.e. intended to extend the normal economic life of the land or of any building or structure or works on the land or to improve productivity
- Improvement confirmed to include mechanical systems etc that are essential to the intended and normal use of the building
- Contract Price is amended to tie in with the concept of a proper invoice and to include any direct costs incurred as a result of an extension of the duration of the supply of services or materials to the improvement for which the contractor or subcontractor is not responsible (i.e. Delay claims). Direct Costs are further defined as well.
- The dollar value used to determine substantial performance is increased to 3% of first $1,000,000 of contract price [previously 500K] and 2% of the next $1,000,000.00 [previously 500K] of contract price [plus 1% of the balance remaining, as before]. If there is a dispute as to a delay claim or extras, then it would be important to resolve that dispute through adjudication prior to reaching substantial performance as these amounts will be added to the Contract Price for the purpose of the calculation and should therefore be invoiced as they are incurred to trigger the payment dispute provisions (or result in payment, in the event that parties are in agreement).
|Old Act||New Act
|Deadline for preserving liens||45 days||60 days|
|Deadline for perfecting liens||45 days||90 days|
|Deadline to file liens and start court actions||90 days||150 days|
|Payment deadline – owner to contractor||[Not specified]||28 days|
|Payment deadline – contractor to subcontractor||[Not specified]||7 days|
|Substantial performance financial threshold tiers||$500,000||$1,000,000|
The ministry will be working to complete the necessary regulations and forms to implement the new legislation. We will provide further updates as those are released and anticipate further news in that regard sometime in February 2018.
|April 1983||Construction Lien Act enacted|
|Mar 2014||Ontario government announced an independent analysis of the current construction lien regime|
|Feb 2015||Report commissioned by the Ministry of the Attorney General and the Ministry of Economic Development, Employment and Infrastructure|
|April 2016||“Striking the Balance: Expert Review of Ontario’s Construction Lien Act” released|
|May 2017||Bill 142 is introduced and has first reading|
|Sept 2017||Ontario Legislature returns, consideration of Bill 142 resumes|
|Early 2018||Anticipated time when Bill 142 will come into effect|
Why update the Act?
Ontario’s Construction Lien Act is long overdue for an upgrade. The construction industry has been pushing for change for years, many complaining about the Act’s lack of efficiency and effectiveness. No substantial changes have been made to the Act since its inception in 1983.
The Ontario government commissioned a review to address a wide array of concerns with the Construction Lien Act, and to modernize the Act.
The “Striking the Balance: Expert Review of Ontario’s Construction Lien Act” identified many areas that needed improvement.
It made 100 recommendations in the following areas:
- Preservation, Perfection, and Expiry of Liens
- Holdback and Substantial Performance
- Summary Procedure
- Construction Trusts
- Promptness of Payment
- Surety Bonds
- Technical Amendments
- Industry Education and Periodic Review
Crunching the numbers
14 months – consultation period of “Striking the Balance: Expert Review of Ontario’s Construction Lien Act”
34 years – age of the Construction Lien Act
58 – number of participating stakeholders in the review
100 – number of recommendations made in “Striking the Balance: Expert Review of Ontario’s Construction Lien Act”
Legislation affected by Bill 142
- Condominium Act, 1998
- Construction Lien Act
- Courts of Justice Act
- Land Titles Act
- Limitations Act, 2002
- Mining Act
- Ontario New Home Warranties Plan Act
- Protecting Condominium Owners Act, 2015
- Registry Act
- Workplace Safety and Insurance Act, 1997
Other jurisdictions considered in the review
- Hong Kong
- New Zealand
- South Africa
- United Kingdom
If you have further questions about Bill 142 and how it may affect your business, contact our Commercial Litigation Group.