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12 Sep 2018

New Ontario Act Ensures Construction Contractors Don't Get Short-Changed Featured

On December 12, 2017, Bill 142, the Construction Lien Amendment Act, 2017, became law in Ontario (“the Act”).

The Act comes in response to an independent expert review of Ontario’s construction laws. The amendments to the Act are focused on modernizing construction lien and holdback rules, helping to make sure that construction workers and businesses get paid on time for their work and to help make sure payment disputes between contractors and consumers are addressed more quickly.

The amendments that address the modernization of the lien and holdback rules came into effect on July 1, 2018. Further amendments respecting prompt payment and dispute resolution will come into effect October 1, 2019.

Below is a summary of one of the major changes to the Act, which provides contractors with more time to register a construction lien against a consumer’s property.

What is a Construction Lien?

In its most basic sense, a lien is a notice attached to your property telling the world that a creditor claims you owe it money. A construction lien is a charge or security that can be registered on title to your property by anyone who has supplied services or materials to improve the property, such as a contractor.

One situation that we regularly encounter occurs when a homeowner hires a contractor to complete renovations on their home, the contractor fails to properly complete the project, or there is a breakdown in the relationship between the homeowner and the contractor, and the homeowner refuses to pay the contractor as a result. In these circumstances, the contractor may register a construction lien on title to the property for the amount that they believe they should be paid under the contract.

The reason it is important to promptly deal with a construction lien that is registered on title to your home is that to sell or refinance property, you must have “clear title”. As such, lien on your home will prevent you from freely dealing with your property. To clear title, you would be required to pay off the lien or get the contractor to agree to have the lien removed.

Preserving and Perfecting Construction Liens

Beginning July 1, 2018, the deadline for a contractor to “preserve” a lien is extended from 45 days to 60 days from the date the contract is completed, abandoned, or terminated. “Preserving” a lien means that the contractor must register the lien on title to your property with the Land Registry Office for the amount of money that they claim is owed to them under their contract. If the contractor does not preserve their lien in 60 days, they will not be able to register the lien on title to your property.

Once the contractor has preserved their lien, they must “perfect” the lien. To “perfect” the lien, the contractor must start a lawsuit to enforce their lien and register a document called a “Certificate of Action” on title to your property with the Land Registry Office.

According to the amendments to the Act, the deadline to “perfect” a lien has also been extended from 45 to 90 days after the last date that the lien could have been preserved. If the contractor fails to perfect their lien within the 90-day timeframe, the contractor will lose their ability to enforce the lien and the lien may be removed from title to your property.

The changes set out in the Act will be grandfathered in, meaning that they will not apply to a project where the contract between the homeowner and contractor was entered into before July 1, 2018. Any project that began prior to July 1, 2018 will continue to be governed by the rules and timelines set out in the Act as it existed prior to July 1, 2018. As such, it is important to clearly understand what time frames apply to your contract.

Why Do these Changes Matter?

This change will likely have a significant impact on all parties involved in a construction dispute. Often a substantial amount of time passes as contractors demand payment, negotiate with a homeowner, contact a lawyer, and eventually register their lien. While all of these steps take place, the clock continues ticking from the completion or abandonment of the project, leaving little time to get documents in order to preserve the lien.

This means that, under the previous legislation, contractors would often miss the deadline to preserve their lien. The new changes provide additional time for contractors to preserve their lien rights, meaning that homeowners are less likely to be able to run out the clock in the hopes that the contractor will not register their lien in time.

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