OTHER AMENDMENTS TO THE ACT Under the new Construction Act, parties have more time to resolve their disputes outside of litigation, as timelines to preserve and perfect liens are extended from 45 to 60 days and 45 to 90 days, respectively. Release of holdback is mandatory, ensuring that after the lien period expires, the owner promptly pays the holdback to the contractor, unless the owner has published a notice of non- payment, and notified the contractor of such publication. Regarding “lienability,” “capital repair” has been added to the definition of improvement. “Capital repair” is defined as “all repairs intended to extend the normal economic life or to improve the value and productivity of the land building, structure or works on the land.” This does not include any maintenance work done to the land. Maintenance is intended to maintain the original condition of the land, building, structure or work and thus, is not part of the improvement. For example, snow removal as part of the regular maintenance will not give rise to lien rights, but snow removal directed by the contractor to clear the way for construction of any improvement may be lienable. In addition, the definitions of “contractor” and “subcontractor” now include a joint venture or joint ventures entered into for the purposes of the improvement. Regarding the definition of “price,” case law suggests that direct out-of-pocket costs incurred ought to be part of the lien, but no other damages. Therefore, to bring the case law in line with legislation, the price of a contract is now defined as the contract price agreed between the parties, or the actual market value of the services or materials (if no contract) and any direct out-of-pocket costs of extended duration (excluding delay damages). PRESERVATION AND PERFECTION OF LIENS The time period for the preservation of liens has been extended to 60 days from 45 days. Further, termination of a contract or subcontract will be added to the list of events triggering the start of the clock (time limit) for the preservation of liens. The time period for the perfection of a lien has been extended to 90 days, up from 45, from the last day on which that lien could have been preserved. The timeframe from registration to perfection period has been amended to 150 days, instead of 90 days. SUBSTANTIAL PERFORMANCE AND HOLDBACK Regarding the definition of “substantial performance” and “completion,” the Act has changed the thresholds at which a contract is considered to be substantially performed, as well as for when it is deemed to be completed. The increase in the thresholds from $500,000 to $1 million for substantial completion, and increase from $1,000 to $5,000 for deemed completion, is intended mainly to reflect inflation since 1983. A further change in this section applies to non-contiguous lands. The Act states improvements to non-contiguous lands under a single contract shall be deemed, for the purposes of calculating substantial performance and completion, to be separate contracts for each improvement. The release of holdback was permissive, not mandatory under the old regime. The Act amends “may, without jeopardy,” to “shall,” making the payment of both basic holdback and holdback for finishing work mandatory. Recognizing the necessity of a balance between a contractor’s right to be paid in full and the owner’s right to set-off, the owner may refuse to pay some or all of the holdback amount, in good faith, provided that a notice of non-payment/ set-off is published by the owner. In that case, the owner intends to assert a set-off in relation to the contract, specifying the amount of the holdback that the owner refuses to pay. There are also new provisions relating to the annual and phased release of holdback. The Act permits a partial release of holdback on either a phased or annual basis if the amount provided for in the construction contract entered into by the parties is at least $10 million. With respect to design work, the $10 million threshold does not apply where the contract provides for the phased release of accrued holdback only for the design phase. Instead of holdback only being retained in the form of cash, the Act states holdback may now be maintained in the form of a letter of credit, demand repayment bond or other prescribed form. This validates some of the commercial arrangements already being used in the industry, and allows owners to avoid maintaining cash in ways that may be cumbersome to administer. CONSTRUCTION TRUSTS The Act has also amended the trust provisions with respect to trust fund bookkeeping. The trustee will be required to deposit trust funds into a bank account in the trustee’s name and the trustee must maintain written records detailing the trust funds (e.g. amounts received, paid out, transfers). The Act further provides that multiple trusts (i.e. monies from different projects) can be deposited into a single bank account, provided the trustee maintains separate records of each trust. So, a separate trust bank account for each project is not required. If separate written records are maintained for each trust, there will be no breach of trust if the trust funds are deposited into the same bank account, as the funds are deemed to be traceable. SURETY BONDS All contractors performing work under a “public contract” in the amount of $500,000 or more (contract in respect of an improvement with the Ontario Crown, municipality or broader public sector entity), will be required to provide a labour and material payment bond and a performance bond for at least 50 per cent of the contract price. In short, the Construction Act has introduced a time-sensitive regime that is intended to keep projects going and contractors paid. Catherine E. Willson is counsel in the law firm Goldman Sloan Nash & Haber LLP (willson@gsnh.com), a full-service law firm in Toronto (www.gsnh.com). This information deals with complex matters and may not apply to particular facts and circumstances. The information reflects laws and practices that are subject to change. For these reasons, this information should not be relied on as a substitute for specialized professional advice in connection with any particular matter. LEGAL COLUMN 14 THE OFFICIAL PUBLICATION OF THE SCAFFOLD INDUSTRY ASSOCIATION OF CANADA