June 22, 2018

Ontario’s New Construction Act:  What you need to know

Ontario’s New Construction Act:  What you need to know

Written by: Robert C. Harason

The new Ontario Construction Act comes into force on July 1, 2018, except that Part I.1 prompt payment and Part II.1 construction dispute interim adjudication, do not come into force until October 1, 2019.

The old Construction Lien Act continues to apply if:

  1. the contract was entered into before July 1, 2018 regardless of when any subcontract under the contract was entered into;
  2. a procurement process (including the making of an RFQ, RFP or call for tenders) was commenced before July 1, 2018; or
  3. the project is subject to a leasehold interest and the lease was first entered into before July 1, 2018.

The new Construction Act amends the definition of price of the services or materials for which a lien may be registered, to include extended duration costs and exclude indirect costs such as head office overhead costs and loss of profit, productivity or opportunity (which although not lienable, are nevertheless collectible as damages in an action for damages).

Under the new Construction Act, contractors (those having contracts with the owner) and subcontractors must comply with the following requirements respecting the receipt and disposition of trust funds (amounts paid by an owner to a contractor, and amounts paid by a contractor to a subcontractor) in accordance with section 8.1 which states as follows.

8.1 (1) Every person who is a trustee under section 8 shall comply with the following requirements respecting the trust funds of which he or she is trustee:

  1. The trust funds shall be deposited into a bank account in the trustee’s name.  If there is more than one trustee of the trust funds, the funds shall be deposited into a bank account in all of the trustees’ names.
  2. The trustee shall maintain written records respecting the trust funds, detailing the amounts that are received into and paid out of the funds, any transfers made for the purposes of the trust, and any other prescribed information.
  3. If the person is a trustee of more than one trust under section 8, the trust funds may be deposited together into a single bank account, as long as the trustee maintains the records required under paragraph 2 separately in respect of each trust.

(2)  Trust funds from separate trusts that are deposited together into a single bank account in accordance with subsection (1) are deemed to be traceable, and the depositing of trust funds in accordance with that subsection does not constitute a breach of trust.

As the definition of deemed contract completion/deemed last supply of services and materials has been amended from the lesser of 1% of the contract price and $1,000.00, to the lesser of 1% of the contract price and $5,000.00, deemed completion/last supply, for the purpose of the commencement of the time for the registration of a construction lien, should be considered on projects with a contract having a contract price of $500,000.00 or more, as occurring on the date when the price of contract completion or last supply first reaches the sum of $5,000.00.

Other changes under the new Construction Act include:

  • Under a contract with a contract price of $10,000,000.00 or more, a payer may make payment of the accrued holdback on an annual or on a phased basis.
  • An owner may refuse to pay the holdback if, not later than 40 days after publication of the Certificate of Substantial Performance, the owner publishes a notice in the prescribed form, specifying the amount of the holdback that the owner refuses to pay, and the owner notifies the contractor of the publication of the notice.
  • Starting October 1, 2019, a contractor whose owner has refused to pay some or all of the holdback (and a subcontractor whose contractor has refused to pay some or all of the holdback), may refer the refusal to pay holdback to adjudication.
  • The new Construction Act increases the time for the registration of construction liens (from 45 to 60 days) and the time for the commencement of construction lien actions.
  • If a contract is terminated, the terminating party (and others) are required to publish a notice of termination in the Daily Commercial News. This is because the commencement of the time within which liens must be registered commences on the earlier of the old Construction Lien Act dates and the date the contract is completed, abandoned or terminated.
  • A person who liens an improvement to the common elements of a condominium corporation must give notice of the lien to the condominium corporation and to each of the unit owners.
  • When vacating a lien by the posting of security, the security for costs required to be posted is increased from the lesser of $50,000.00 and 25% of the amount of the lien to the lesser of $250,000.00 and 25% of the amount of the lien.
  • Contractors performing work under a public contract (where the owner is the Crown, a municipality or a broader public sector organization) must furnish the owner with a labour and material payment bond and a performance bond with a coverage limit of at least 50% of the contract price.
  • Although the Statement of Claim may continue to be served by registered mail, the written notice of lien which must be delivered by a subcontractor to an owner in order to prevent further payments from being made by the owner to the contractor, must be personally served on the owner.

There are other changes to the law of construction liens in the new Construction Act that are not addressed in this article.

Download Article | Ontario’s New Construction Act:  What you need to know

Robert Harason is a partner at Beard Winter LLP and has practised law and litigation for over 36 years.
Do you have questions about this topic? Email Robert at rharason@beardwinter.com or call him at 416-306-1707.
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