Mark Your Calendar: Construction Act Amendments Set To Redefine Holdback, Lien Rights and Adjudication

By: Christophe Shammas, Alison Kuchinsky & Nicholas Cheung

On November 6, 2024, Bill 216, Building Ontario For You Act (Budget Measures), 2024 received Royal Assent to amend the Construction Act. This bulletin summarizes some of the key changes that you should be aware of.

Change to Adjudication Rights

Previously, adjudication rights expired after ‘completion’ of the contract or subcontract. This led to preliminary jurisdictional issues over whether and when the contract was considered ‘completed’ and whether adjudication was still available. It also did not address what would happen if a project was abandoned or terminated before completion.

Under the amendments, the right to adjudicate contractual disputes under the Construction Act will now expire 90 days after the contract or sub-contract is ‘completed, abandoned or terminated,’ unless parties agree otherwise. For subcontracts, adjudication rights may expire earlier, as the right to commence an adjudication will also expire 90 days after the day the subcontract is certified as complete or the last day the subcontractor supplied services or materials.

These changes will permit parties to wait until after the completion of their contracts to pursue adjudication.  Furthermore, a future regulation will expand the type of matters that are subject to adjudication, including allowing disputes with other contractors contracted to the same improvement, subject to regulation.  Together, these amendments will make adjudication a more accessible and effective option for resolving construction disputes.

Change to Payment of Annual Holdbacks

Under the current holdback regime, owners are permitted to release holdback on an annual or phased basis, but for the most part have elected to retain holdback until substantial performance of the entire contract. The amendments to the Construction Act will now require holdback to be released on an annual basis by the “owner” for all contracts.

Owners will be required to publish a notice, within 14 days of the anniversary of the day that the contract was “entered into”, of their intention to release holdback and, unless a lien has been preserved or perfected, the holdback for that year must be released 14 days after the expiry of the lien period. This will necessarily reduce the holdback required to be retained by a payor to the extent of the amount paid.

These amendments will allow subcontractors who perform early work on a project (such as excavation or forming) to receive their holdback prior to substantial performance of the entire project. It will also require owners and contractors to have good processes for recording the anniversary of contracts and for ensuring that appropriate notices are being published every year.

Effect of Annual Holdbacks on Liens

The changes to the holdback provisions will have a correspondingly significant impact on lien rights. Under the amendments, a lien arising from the supply of services or materials covered by an annual holdback notice will expire within 60 days of the annual notice being published. This means that contractors, subcontractors and suppliers will have to keep track of notices for the projects they are working on and will have to consider registering liens before they have completed their work. 

Deemed Holdback Release for Designs

The current version of the Construction Act does not clearly address whether a person who supplies design services has lien rights when the project does not proceed. This has become an issue for architects and engineers who are retained and perform substantial work in advance of construction. The amendments address this issue by deeming that lien rights exist for a person who supplies a “design, plan, drawing or specification” for an improvement that is not commenced if the owner retains a holdback for the supply. This right is lost if the owner proves that the work supplied did not improve value.

Transition Timeline

The amendments come into force upon proclamation by the Lieutenant Governor, with some exceptions. For contracts entered into before the amendments come into force, the annual holdback release provisions take effect on the second anniversary of the day the contract was entered into (provided the amendments are in force at that time) and applies to all holdback accrued before that date. The amendments do not affect improvements that are still governed by the old Construction Lien Act by virtue of the current transition provisions.

Final Thoughts

Loopstra Nixon LLP’s Construction Litigation group is engaged in all aspects of disputes arising from construction projects located in Ontario and will continue to provide updates on the Construction Act and associated regulations as more information is available. If you have any questions regarding how these proposed changes may impact you, please do not hesitate to contact a member of our team.

Disclaimer

The information provided serves as a high-level summary and does not constitute legal advice.