On July 1, 2018, the first of the changes to the Ontario Construction Lien Act under the December 12, 2017, Construction Lien Amendment Act became effective. The statute we knew as the Construction Lien Act (Ontario) has been revised and renamed as the Construction Act (the “Act”) and the new lien and holdback rules have come into effect in addition to a number of important definitional changes. While a number of other important changes will be delayed until October 1, 2019, including the adjudication and prompt payment regimes, every contract entered into after July 1 will be subject to the new lien and holdback rules under the revised Act unless the contract was entered into as the result of a procurement commenced prior to July 1 or relates to leasehold space under a lease entered into before July 1.
The immediate impact on lenders, owners, contractors and subcontractors will be the increased period for preservation of liens from 45 days to 60 days. While contractors and subcontractors may breathe a sigh of relief that they have an additional 15 days to preserve their lien claims, owners and lenders will need to make some immediate changes to their approach to holdback release. Not only are the time periods changing but if there are setoffs against the holdback money that might be claimed at expiry of the lien preservation period, notice of such setoff claims must be made within 40 days of certification or declaration of substantial performance. Holdback funds will no longer be available after expiry of the holdback period as holdback release is mandatory unless the potential claim has been identified and notice provided prior to 40 days after certification or declaration of substantial performance.
Mandatory payment of holdbacks applies down the subcontract chain therefore any setoffs between the contractor and subcontractors will be subject to the same regime.
The transition to the new holdback regime may cause some confusion. If in any doubt as to whether the new regime applies contractors and subcontractors will be well advised to preserve lien claims prior to the expiry of the shorter 45 day, the prudent course for owners and lenders will be to apply the new rules and retain holdbacks for the full 60 day period and identify setoffs no later than 40 days after certification or declaration of substantial performance.
