Ontario’s New Construction Act Arrives on July 1, 2018: Don’t get Caught by the Transition Rules
[This article was edited on June 7, 2018]
The Construction Lien Act amendments will begin to take effect July 1, 2018. Hailing big changes to timelines, procedures and the manner in which many disputes will be resolved, the new legislation includes a gradual transition to help you avoid a misapplication of the new provisions.
Among the most immediate changes is the extension of the timelines to preserve and perfect liens. Long the bane of lawyers and contractors alike, the time to preserve a lien is extended from 45 to 60 days and to perfect a lien from 45 to 90 days. Other notable changes coming into force July 1, 2018 include:
- lien claims and trust claims can now be joined in an action;
- appeals from interlocutory orders are now permitted but only with leave;
- increased maximum for security for costs from $50,000 to $250,000 on payment into court;
- new contractors’ and sub-contractors’ duties to account for trust funds, hold a bank account and keep records; and
- new requirement for owners to provide notice in the case of any non-payment of holdback, e.g., for set-off claim.
Changes effective October 1, 2019
Other big changes do not come into force until October 1, 2019: they include the introduction of an adjudication framework and prompt payment provisions.
Which Act Applies?
It must be stressed that the transition to the Construction Act will be gradual. The transition rules, which are set out under section 87.3 of the Construction Act, state that the Construction Lien Act (and hence its provisions) continue to apply if the contract for the improvement was entered into, the procurement process was commenced, or a lease concerning the premises was first entered into before July 1, 2018.
What does this mean for existing construction?
No existing construction work or projects will be subject to the new regime under the Construction Act. Even projects only at a bidding or “request for proposal” stage at any time prior to July 1, 2018 will remain under the old Construction Lien Act.
The transition could be especially gradual for work done on leased premises, since if the lease was first entered into prior to July 1, 2018, the Construction Lien Act will continue to apply which, for leases with numerous renewals, could very well be for years to come.
This gradual transition framework means that lawyers should take a cautious approach to the application of the new Construction Act. For example, reliance on the longer time periods to preserve and protect liens under the Construction Act could prove fatal to a client’s lien rights if the improvement is subject to the old legislation.
When in doubt, preserve and perfect within the shorter Construction Lien Act timelines in order to avoid potential expiry of the lien.
In light of the importance of the transition rules, it is not surprising that the Toronto Construction Lien Masters have issued a notice to the construction bar outlining that evidence will be required when applying the transition provisions. This will mean, for example, that in relying on any provision of the new Construction Act, counsel will be required to demonstrate that neither the contract for the improvement nor the procurement process, was entered into or commenced prior to July 1, 2018 AND that the improvement does not relate to premises that are subject to a leasehold interest in which the lease was first entered into before July 1, 2018.
In summary, the process of replacing the Construction Lien Act with the new Construction Act commences on July 1, 2018 when most of the new legislation comes into force. However, as a result of the transition rules in section 87.3 of the Construction Act, the old Construction Lien Act will continue to be applied for potentially many more years to come.
Martine M. Morin, Senior Claims Counsel, LAWPRO
Brendan Bowles, Glaholt LLP