Seminars and Courses
We are giving a seminar on the new Construction Act for the Kitchener-Waterloo section of the Mechanical Contractor’s Association on October 3, 2018 and Landscape Ontario’s Congress on January 8, 2019 as well as courses on both the Construction Act and on Contract Risk Management for the Ontario Road Builder’s Association in February, 2019. If you would like to schedule a seminar or course for your group or association, please let us know at inquiries@kennaley.ca.
This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.
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August 20, 2018
The New Monetary Amounts and Thresholds Under the Construction Act
When the Construction Lien Act was introduced in 1983, its monetary amounts and thresholds were established based on the value of money at the time. With the sweeping changes to the legislation made July 1, 2018 comes a long overdue overhaul of these figures. We will review these changes below.
Vacating Liens Under s. 44 of the Act
Liens registered against title to a premises will often stop the flow of funds on an improvement. In addition, contractors will generally have a contractual obligation to remove (or vacate) liens that are placed on title. (Often, of course, subcontractors and others will have similar obligations). Section 44 allows any person to vacate a lien by posting a sufficient amount with the Court, by way of cash, bond or letter of credit. The lien can be vacated under s.44(1) by posting of a pre-determined amount without notice to any other party, while the Court can impose a different amount under s. 44(2) if convinced to do so on a motion brought on notice. (Successful motions under s. 44(2) are exceedingly rare).
In any event, the predetermined amount under s.44(1) includes an amount for the lien claimant’s costs. It is a virtual certainty that any successful motions under s44(2) will also. In 1983, the legislator’s determined that the proper amount for costs under s.44(1) should be 25% of the quantum of the lien claim, to a maximum of $50,000.00. As of July 1, 2018 (in relation to contracts entered into or procured after that date and premises not subject to a lease executed prior to same) the costs portion has been increased to a maximum $250,000.00. Accordingly, liens of $800,000.00, for example, will require costs security of $200,000.00 and liens of $400,000.00 will require security of $100,000.00 (and so on). This will be good news or bad news, depending on whether you are a lien claimant or the party vacating the lien. Certainly, lien claimants have complained about insufficient costs security for years, while those on the other side will now face increased security requirements.
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The Threshold for Substantial Performance
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The publication of a certificate of substantial performance starts the clock ticking on the expiry of lien claims against the basic holdback which payers are required to keep. Determining when the substantial performance of an improvement has been obtained has always been based in part on a mathematical formulae. Under the prior legislation it was 3% of the first $500,000.00 of contract value, plus 2% of the next $500,000.00 of contract value and 1% of the remaining contract value. Under the changed legislation, the $500,000.00 figure is now replaced by $1,000,000.00. The practical impact is that on contracts of more than $500,000.00 it will take slightly longer to reach substantial performance. As always, determining whether or not substantial has been reached will be done by a consultant appointed by the owner under the contract, by the contractor and owner collectively on consent or, in a worst-case scenario, by the Court.
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Deemed Contract Completion
The claim for lien of a contractor (unlike a subcontractor) will expire (subject to the publication of a certificate of substantial performance) 45 days from the date the contract is abandoned or completed. Under the new legislation, the termination of the contract has been added to this list of triggering events. Under the prior legislation, a contract was complete when less than 1% of the contract value or $1,000.00 worth of work remained to be performed (inclusive of the cost of rectifying deficiencies). The $1,000.00 figure has now been replaced by $5,000.00.
Small Claims and Appeals
Under the prior legislation, liens of all amounts had to be pursued to in the Ontario Superior Court. This was difficult for those with small claims as the costs of pursuing a claim in Superior Court made the pursuit of small lien claims impractical. Now, those with small lien claims will be entitled to pursue and enforce liens for less than $25,000.00 in the small claims court, where costs can be managed much more effectively. Claimants can use paralegals and represent themselves and costs awards are very limited. As regards appeals, the threshold beneath which appeals (or motions to oppose a Report) cannot be brought has been increased to $10,000.00.
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Labour and Material Payment Bonds and Phased Holdback
As indicated in our last blog, the labour and material payment bond requirements introduced by the new legislation apply to all public contracts entered into or procured after July 1, 2018 that have a value of $500,000.00 or more (unless the improved premises are subject to a prior lease). In a previous blog we also noted that the new legislation allows for the annual or phased release of holdback on contracts of $10,000,000.00 or more.
