Report on Updating the Construction Lien Act
Published on: 29/09/2016
On September 26, the province published Striking the Balance: Expert Review of Ontario's Construction Lien Act (Report). The Report, drafted by Bruce Reynolds and Sharon Vogel (the reviewers), was delivered to the Ministry of the Attorney General (MAG) in April 2016 and was being reviewed and considered since that time. According to the MAG mandate letter released earlier in September, the Attorney General is expected to introduce legislation to reform the Construction Lien Act (Lien Act) in the Spring of 2017; though it is not yet clear whether or not these changes will mirror the recommendations made in this Report.
Overall, the Report makes 100 recommendations (attached for reference) on how to reform the Lien Act. These recommendations focused on eleven primary themes based on all the received stakeholder feedback: lienability; preservation, perfection and expiry of liens; holdback and substantial performance; summary procedure; construction trusts; prompt payment; adjudication; surety bonds; technical amendments; and industry education and periodic review.
Given that the scope of the recommendations were so detailed and far-reaching, the reviewers made one primary, over-arching recommendation at the outset of the Report: that the Construction Lien Act be scrapped in favor of a new act, entitled the Construction Act: An Act respecting Security of Payment and Efficient Dispute Resolution. According to the reviewers, the recommendations need to be taken holistically, rather than piecemeal, as any further tinkering with the existing Act is only likely to further complicate and convolute the rules around the construction payment process.
To coincide with the publication of the Report, the MAG issued a clear commitment from government to make significant reforms to the existing Lien Act. Attorney General Yasir Naqvi indicated that the government will introduce legislative reforms, with the goals of:
1. Modernizing the construction lien and holdback rules;
2. Introducing rules around prompt payment; and,
3. Creating a new mediation process to speed up dispute resolution.
Key Recommendations of Note
• Extend the lien preservation period to 60 days and extend the period to perfect a lien to 90 days (from the current 45 days).
• Replace the concept of "grossly exaggerated" liens with "wilfully exaggerated" liens, to decrease frivolous lien claims.
• Remove lot-by-lot preservation provisions for subdivision lots.
• Increase the value of substantial completion to $1 million.
• Include rules around the mandatory release of holdback, subject to the notice of set-off, but not mandatory early release of holdback.
• Permit partial release of holdback in certain circumstances (i.e. on an annual basis).
• Permit segmented release of holdback for clearly separable project improvements (particularly for AFP/P3 projects).
• Supplement the current scheme to allow for the replacement of cash holdbacks with Letter of Credit or Holdback Repayment Bond.
• Institute rules around interest penalties for late payment.
• Remove "pay-when-paid" clauses.
• Introduce an adjudication process that will quickly review and rule on payment disputes. Decisions will be binding on an interim basis, but enforceable similar to an arbitration award, where either party can decide to re-open the decision in litigation at the end of the project.
• Require broad form Surety Bonds to be issued for all public sector projects.
• Review the Act 5-years after implementation and then every 7-years after that.
If you have any questions about the Construction Lien Act review, please contact Patrick McManus (email@example.com or 905-629-7766 ext. 222).
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