Impact of the new Construction Act: are you ready for it? 

By Andrew J. Heal

As we’ve previously written, the Ontario government recently enacted amendments to the Construction Lien Act which were given Royal Assent on December 12, 2017. While on this date, the Construction Lien Amendment Act, 2017 became law, many of the new provisions will be phased into law coming into force July 1, 2018, with other provisions coming into force later in October 2019. Notably, on July 1, 2018 the Construction Lien Act will be renamed the Construction Act.

This new Construction Act has been the subject of a lot of discussion.  The Expert Review conducted for the Ontario Government resulting in these changes in 2017 has attempted to strike a balance and modernize the old Construction Lien Act, an Act which really has not been examined in a thorough way for almost 40 years.

This leads to many questions:

• What is the impact of the new Construction Act on your business?
• Have you read the new Act? Do you understand the changes? Have you institutionalized these new changes into your own practices and procedures?
• Have you updated your documents and forms?
• Do you need to hire anyone or re-allocate resources to be ready?

These are all questions that the industry should be considering.

Highlights of Changes
The new Act has many changes and is truly a new statute in many respects, and those doing business in the construction industry need to be ready for these changes. However, the old Construction Lien Act continues to apply to construction contracts made, procured, or leased before July 1, 2018 (see Transition section 87.3 of the Construction Lien Amendment Act, 2017).

The new Construction Act brings extended timelines: e.g. there are now 60 days (previously 45 days) to register a lien and 90 days (formerly 45 days) to perfect that lien.

In addition, liens against municipal premises are no longer to be registered, but are now to be given to the clerk of the municipality (see s.34 (3.1)), and there will be a repository to allow municipal owners and other public-sector organizations to keep track of liens against their real property.

Further, there are new definitions of a “proper invoice”, “prompt payment”, and an “adjudication” regime all coming into force in October 2019.  These new definitions, and legal changes should be discussed with your advisors, to be ready for them. Failure to pay on time can have significant consequences, including the new statutory right to stop work, and in certain circumstances, terminate a construction contract or subcontract.  New regulations have been published for comment and are anticipated to be finished in the spring of 2018.

There will also be new Construction Act forms for many things including notices to landlords, notices of termination and new lien bonds, including a holdback release bond.

Perhaps the most significant change coming is the new trust regime for contracts entered into, procured, or leased after July 2018. The new trust requirements apply to contractors and subcontractors, imposing specific duties regarding trust funds.

The new Construction Act provisions State: 

“Contractor’s, subcontractor’s duties re trust funds 
8.1 (1) Every person who is a trustee under section 8 shall comply with the following requirements respecting the trust funds of which he or she is trustee:

1. The trust funds shall be deposited into a bank account in the trustee’s name. If there is more than one trustee of the trust funds, the funds shall be deposited into a bank account in all of the trustees’ names.
2. The trustee shall maintain written records respecting the trust funds, detailing the amounts that are received into and paid out of the funds, any transfers made for the purposes of the trust, and any other prescribed information.
3. If the person is a trustee of more than one trust under section 8, the trust funds may be deposited together into a single bank account, as long as the trustee maintains the records required under paragraph 2 separately in respect of each trust.

Multiple trust funds in single account
8.1 (2) Trust funds from separate trusts that are deposited together into a single bank account in accordance with subsection (1) are deemed to be traceable, and the depositing of trust funds in accordance with that subsection does not constitute a breach of trust.”

Owner’s trusts continue to be governed by section 7 of the old Construction Lien Act which provides that all amounts received by an owner, other than the Crown or a municipality, that are to be used in the financing of an improvement constitute a trust fund for the benefit of the subcontractor (excepting the purchase price of the land and the payment of prior encumbrances).

Further, the existing section 7 owner’s trust continues in force, which provides that amounts which are certified, or which become payable under a construction contract, constitute trust funds in the owner’s hands.

Any trustee of an owner’s, a contractor’s, or a subcontractor’s trust fund under the new Construction Act, or the former Construction Lien Act, shall not use or convert any part of those trust funds, or use for any use inconsistent with the trust until the beneficiary of the trust fund has been paid all amounts owed. If you breach a trust you risk personal liability. The officers, directors, and those in effective control of a corporate trustee risk personal liability from failure to comply with the new requirements respecting the trust funds.

Learn More and Be Prepared
These provisions, both new and old are worth a legal refresher. Please join Heal & Co. LLP for seminars we will be conducting throughout 2018 and into 2019 to help you and your business get ready for the new Construction Act changes.