Bill 142 Construction Lien Amendment Act

On May 31, 2017, Bill 142 was introduced into the Ontario legislature.  It has already passed first reading and is expected to be made law in early 2018.

This is the first major shakeup of Construction Lien legislation in Ontario since the old Mechanics Lien Act, was replaced by the Construction Lien Act, in 1983.

But note, this time around, the previous legislation isn’t being scrapped.  Rather, very significant amendments are being made to the old Construction Lien Act, adding large new sections, but the basic Act and format is remaining.

The old title will be replaced by the new name Construction Act.  But the basic structure where parties who make improvements to land have a right, in addition to suing on their contract, of liening the owners interest for the value of their improvement within stipulated times, and ultimately having the right to sell the owner’s interest in the property, unless the owner pays the “holdback” into court, still remains.

So what are the major changes to the Act?

i)             TIMING CHANGES

Some of the most basic changes are that the lien period for preserving the lien is extended from 45 days to 60 days, and the time for perfecting the lien (by commencing a lawsuit) is extended from 45 days to 90 days.

ii)            PROMPT PAYMENT REGIME

Owners are now required to pay their contractor the amounts of “proper” invoices, within 28 days of receiving them;  in turn the contractors have to pay their subs and suppliers within 7 days of receipt of payment.

In either case, the person paying, i.e. the payer may deliver a Notice of Non-Payment, explaining why some or all of the amount of the invoice is not being paid and giving a reason therefore within 14 days.  Undisputed amounts must be paid immediately.

Mandatory interest at either the rates set out in the contract, or failing that, the rates stipulated by the Courts of Justice Act, (approximately currently 1.5%)  will automatically be payable on unpaid amounts.

iii)           TIMELY ADJUDICATION

The amendments to the Act now have a section that basically sets out that disputes during the project over the quality of the work, the amount properly owing for interim payments (which are now stipulated to be monthly, unless the contract provides otherwise), are to be promptly presented to and resolved by a Qualified Adjudicator, either agreed to by the parties or appointed by a government body.

The Qualified Adjudicator will be a professional, be it a lawyer, engineer, architect etc. who has taken an approved course and is on an approved list. Their decision will be binding  for the duration of the project so that work can continue.  However, if the Qualified Adjudicator orders that money be paid, and it isn’t paid, within 10 days of the order, the contractor can stop work until it is paid.

After the job is completed, the parties are free to contest the dispute either before an arbitrator or the courts if they don’t like the adjudicators decision. The process is modeled on one existing in England.  The English experience is that the parties generally don’t ultimately challenge the Qualified Adjudicator’s decision.

Such decision is usually rendered within one month.

iv)          MISCELLANEOUS CHANGES

Trust Funds – recipients of trust funds must now keep them in a specialized “Trust Account”.  It may be a “mixed account” but they can’t retain these funds in their basic business account.

 “Holdback” – holdback amounts that must be retained can now be retained in the form of a Bond or Letter of Credit, in addition to cash.

Municipalities - will now be treated like other “Crown” entities where a Notice of Lien is served upon the governmental authority, rather than registered against the title to the land.

Landlords – now may be responsible for 10% of the value of any inducement that they give to their tenant to improve the land.

Small Claims Court – now a Small Claims Court action can be used to “perfect” the claim, where the amount in question is $25,000.00 or less.

These are just some of the major highlights to the new legislation.  The new Act contains additional detailed modifications to the old scheme, all of which will have an impact on the construction industry in future.