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The New Construction Act: Follow-up on Changes to the Construction Lien Act | As we discussed in our previous articles, “4 Key Changes to the Construction Lien Act” and “The New Construction Act: Papering Your Files”, there are some significant changes coming to the Construction Lien Act, now called the Construction Act (the “Act”). In fact, this is the most significant amendment to the Act in 30 years.
Changes to the Act are being implemented in stages. Most of the changes are not in effect yet, but are expected to come into force on July 1, 2018. The prompt payment regime and mandatory adjudication (discussed below) are expected to come into force on October 1, 2019.
In addition to the changes we previously discussed such as longer lien periods and increased flexibility with holdbacks, here are a few more key changes of Bill 142:
- Narrowing the Definition of an “Improvement”
The definition of an “improvement” has been amended to state a “capital repair to the land”, as opposed to simply a “repair to the land”. This amendment clarifies that only repairs intended to extend the normal economic life or improve the value or productivity of the property qualify as an improvement under the Act. Regular maintenance work performed to prevent normal deterioration does not qualify as an improvement.
This amendment follows the existing case law. For example, in G. Newman Aluminum Sales Ltd. v Snowking Enterprises Inc., 1980 CarswellOnt 551, the Court determined that snow removal did not qualify as an improvement under the Mechanic’s Lien Act.
- Increased Landlord Liability and Responsibility
In Section 19 of the existing Act, a landlord may be subject to liability for a lien if the lien claimant provides notice to the landlord before work is commenced on the leasehold premises. However, the landlord has the option to opt out of this liability by responding to the notice. Even where the landlord does not opt out, the courts have been reluctant to allow landlord interests to be liened in these circumstances. For example, in Winnen Construction Group Conditioning Ltd. v Oxford MRC Inc., 2002 CarswellOnt 3593, the court determined that the landlord’s interest was not subject to the lien despite the fact there was a tenant inducement and the landlord had previously reviewed the work plans.
The amended Act will allow for the landlord’s interest to be subject to the lien if there is a payment for all or part of the improvement accounted for under the terms of the lease or under any other agreement to which the landlord is a party. This liability is limited to 10% of such payment for the improvement.
Section 19 of the existing and amended Act allow the court to determine that the landlord is instead an “owner” under the Act and subject to full liability of the lien amount. However, existing case law has shown that the court is unlikely to reach this conclusion. This may develop in the future case law of the amended Act.
Landlords will also be required under Section 39 to respond to information requests for details such as the names of the parties to the lease, amount of payment for the improvement included in the lease, and the statement of account between the tenant and landlord.
- Mandatory Interim Adjudication
Any party to a construction contract or subcontract may refer a dispute to mandatory interim adjudication, during the period of the contract, for any 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
This amendment follows a similar system that has been implemented in the UK and will ensure that disputes may be resolved expeditiously. The entire process can take from as little as a few days to several weeks.
The process begins when one party serves a Notice of Adjudication. The parties must then select an adjudicator from the approved registry within 4 days. If the parties cannot reach an agreement, they may request that the Authorized Nominating Authority (the “ANA”) (an entity to be created by the government to train and establish a registry of adjudicators) appoint an adjudicator for them. The party that initiated the adjudication must then provide the adjudicator with the Notice of Adjudication, a copy of the contract, and any other documents they intend to rely on at the adjudication. The adjudicator then has 30 days to reach a decision. Any decision reached after the 30 day time limit is of no force or effect.
The decision is binding on an interim basis until a final determination is reached by a court, through arbitration or by written agreement of the parties. The decision may be enforced as if it were a court order by having it filed with the Superior Court.
- Prompt Payment Regime
This amendment follows a global trend and compels prompt payment of all contractors and sub-contractors within the construction pyramid. The first step under this regime occurs when a contractor provides a proper invoice, detailing the parties, services and materials supplied, the period during which the services or materials were supplied, the amount payable, and any other information required by the contract, to the owner. This action initiates the flow of payment down the construction pyramid within strict timeframes. The owner must then pay the contractor within 28 days. The contractor must then pay its subcontractors within 7 days of receiving payment. Any subcontractors who have hired additional subcontractors must also pay them within 7 days of receiving payment. Interest will begin accruing on payments that are not made within these timeframes.
If the owner disagrees with the invoice they must serve a Notice of Non-Payment within 14 days of receiving the proper invoice. The contractor can then refer the matter to adjudication to be resolved.
These significant changes will modernize the Act and are expected to better meet the needs of parties in the construction industry. Most importantly, the amendments will keep projects moving. Lawyers who practice in the area of construction law can help parties transition to these new processes as they are implemented.
Please contact Michael Paiva for more information about the changes coming to the Construction Act, or if you require assistance with a construction dispute.