In 2017, the province of Ontario introduced legislation to modernize and restructure its construction lien regime, contained within the Construction Lien Act, which would be renamed the Construction Act. The major elements of the restructuring were:
- Changing the timelines for the registration and perfection of a construction lien.
- Requiring that holdbacks be paid to contractors and subcontractors following the expiry of the deadline by which a lien must be filed.
- Introducing a new prompt payment regime into the construction industry.
- Introducing a new interim adjudication mechanism to quickly address disputes that could otherwise delay a construction project from proceeding.
The lien and holdback provisions of the new Construction Act were to come into force on July 1, 2018, while the prompt payment and adjudication regimes would come into force on October 1, 2019. However, the Construction Act logically specified that these new rules and regimes would not apply to construction projects that were already underway prior to the effective date for each new provision. The old provisions of the Construction Lien Act would continue to apply to such projects. This straightforward approach becomes more complex when one examines the transition rules in detail, but, read in their entirety, the transition provisions provide a clear and complete explanation of what rules apply to a given project.
The Transition Rules as Stated in the Construction Act
The transition provisions of the Construction Act are found at s. 87.3, and state at s. 87.3(1) that the new lien and holdback rules will apply to all projects as of July 1, 2018, except when:
- a contract for the improvement was entered into before July 1, 2018;
- a procurement process for the improvement was commenced before July 1, 2018 by the owner of the premises; or
- in the case of a premises that is subject to a leasehold interest that was first entered into before July 1, 2018, a contract for the improvement was entered into or a procurement process for the improvement was commenced on or after July 1, 2018 and before [December 6, 2018].
Section 87.3(4) states that the new prompt payment and adjudication rules will apply to all projects as of October 1, 2019, except for:
- A contract entered into before [October 1, 2019].
- A contract entered into on or after [October 1, 2019], if a procurement process for the improvement that is the subject of the contract was commenced before that day by the owner of the premises.
- A subcontract made under a contract referred to in paragraph 1 or 2.
Both of the excerpts cited above make reference to the “commencement” of a procurement process. After the Construction Act came into force on July 1, 2018, many commentators noted that this language lacks precision. In response, the province passed subsequent legislation in December 2018 to add the following provision to the “interpretation” section, at s. 1(4):
For the purposes of this Act, a procurement process is commenced on the earliest of the making of,
(a) a request for qualifications;
(b) a request for quotation;
(c) a request for proposals; or
(d) a call for tenders.
A further potential ambiguity relates to the different treatment of premises subject to a leasehold interest. The transition rules for the lien and holdback provisions include a special, though narrow, additional exemption for such premises, while the transition rules for prompt payment and adjudication regimes do not.
Notwithstanding this different treatment, however, the rules can be clearly understood on their face: for a premises subject to a lease entered into before July 1, 2018, the new lien and holdback rules will apply to contracts entered into after December 6, 2018, and the new prompt payment and adjudication regimes will apply to contracts entered into after October 1, 2019.
The transition provisions of the new Construction Act can appear complex upon first review, but when read in their totality they are clear and unambiguous. Nevertheless, construction lien practitioners, and all participants in the construction industry in Ontario, must review them carefully to determine which provisions apply to which projects—with particular attention paid to projects involving premises subject to a leasehold interest.
This blog post was written by Brett Hodgins, a member of the Commercial Litigation team. He can be reached at 613-369-0379 or at firstname.lastname@example.org.