4 Key Changes to the Construction Lien Act
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Significant and positive changes for construction firms are on the way with the introduction of Bill 142 by the Ontario Government. Bill 142 was introduced on May 31, 2017, to amend the Construction Lien Act with the goal of increasing efficiency and competitiveness for businesses. The Bill has already passed its first reading and the second reading will occur in the fall of 2017. The Bill is expected to be passed into law in the first quarter of 2018. Although Bill 142 contains many changes that, if passed, will benefit construction firms, there are four key changes that will likely have a significant impact.
The new prompt payment regime requires “proper invoices” which provide details on the services and supplies provided by the contractor. Theses proper invoices are to be given to the property owner monthly, unless the contract sets out a different payment schedule. The owner then has to pay the invoice within 28 days after receiving it from the contractor. If the owner wishes to dispute an invoice they can refuse to pay all or a portion of the invoice if they give the contractor a notice of non-payment within 14 days of receiving the invoice.
This new regime should decrease the amount of time that it takes contractors to receive payment for their work.
Bill 142 proposes mandatory adjudication. This aims to ensure that disputes are resolved efficiently. The process provides quick decisions that are binding on all parties, unless the matter is looked at by the court or arbitration. Either party to a contract can refer a dispute to adjudication, during the period of the contract, as long as it is regarding one of the following issues:
- Valuation of services
- Payment for services
- Notice of non-payment
- Amounts set-off by trustee or lien
- Non-payment of holdback
- Any matter that all parties agree to
The adjudicator must reach a determination within 30 days and must make their determination in writing. The determination must include the adjudicator’s reasons for their decision.
Flexibility with Hold-backs
Bill 142 also introduces several modernizations of the holdback payment scheme. Holdback payments will be allowed to be made in the following forms:
- A letter of credit
- Demand repayment bond
- Any other form that may be prescribed by the contract
This will allow greater flexibility for contractors in securing holdbacks, as opposed to only collecting monetary holdbacks, which owners may be more reluctant to provide.
Additionally, the release of holdback funds to contractors and subcontractors will be mandatory if the following conditions are met:
- The contract contains a completion schedule that is longer than 1 year
- The contract provides for the payment of accrued hold-back on an annual basis
- The contract price exceeds the prescribed amount
- There are no preserved or perfected liens in respect of the contract or all liens have expired, been satisfied, or discharged
These changes trigger the quicker release of hold-back money and are particularly helpful for large multi-year projects. In the current scheme, “substantial completion” could be years away. The proposed changes speed up hold-back payouts.
Longer Period to Register Liens
Bill 142 proposes to extend the timeline for a contractor to register a lien to 60 days, as opposed to the current timeline of 45 days from the date of the substantial performance or abandonment of the contract. The timeline to perfect a lien, after it has been registered, will also be extended from 45 days to 90 days. This is a more flexible approach and allows lien claimants more time to organize their claims.
If the matter is also subject to adjudication, the lien will expire on the later date between when the lien would expire under the 60 day timeline after registration, or 45 days after the adjudicator receives the necessary documents. This amendment will encourage the speedy resolution of matters through adjudication as opposed to the court system.