The condominium industry has experienced its share of changes over the past few years. From an amended Condominium Act, the creation of the CAO and the CAT, new licensing requirements for condominium managers, the introduction of electronic vehicle regulations, new prescribed forms, and the anticipated arrival of short-term zoning by-laws and cannabis legislation, the condominium industry has been busy dismantling old habits to embrace new change. However, there is one more piece of legislation that the condominium industry needs to prepare itself for and this legislation is just around the corner. As of July 1, 2018, the first wave of amendments to the Construction Lien Act (now called the Construction Act) comes into force and will have an impact on any condominium project where there is a supply of services or materials to an “improvement.”
On December 12, 2017, Bill 142, the Construction Lien Amendment Act, 2017, received Royal Assent. Similar to the Condominium Act, the impetus behind Bill 142 was to modernize a piece of legislation that was quickly being outpaced by changes to the industry it regulated. Bill 142 was the result of an extensive 14-month independent review, commissioned by the Ontario government, which engaged the input of multiple stakeholders. The review started in 2015 and concluded in an expert report entitled “Striking the Balance: Expert Review of Ontario’s Construction Lien Act.”
Under the new Construction Act there will be two waves of amendments; the first taking place on July 1, 2018 and the second on October 1, 2019. Under the first wave, the government will be implementing new construction lien and holdback rules, whereas the second wave of amendments will address new rules regarding prompt payment and a new interim adjudication regime.
According to the Ministry of the Attorney General, Ontario passed these amendments to specifically:
- modernize the construction lien and holdback rules;
- ensure workers and businesses get paid for the work performed; and
- help ensure payment disputes are addressed quickly and painlessly.
As of July 1, 2018, the legislation will include some of the following key changes:
- New Timelines for the Preservation and Perfection of Liens: The timeline to preserve a lien will be extended from 45 to 60 days and the timeline to perfect a lien will be extended from 45 days to 90 days, resulting in a combined preservation and perfection period from 90 days to 150 days under the new Construction Act;
- New Definitions:
- The definition of an “improvement” will be curtailed to include “capital repairs” where the prior definition only referred to a “repair”. Capital repairs are further defined under the legislation to include: (i) any repair intended to extend the normal economic life of land or any building, structure or work on the land; or (ii) to improve the value or productivity of the land, buildings, structures or works. A capital repair, however, will not include maintenance work performed in order to prevent normal deterioration;
- The definition of “price” will be expanded to include any direct costs incurred as a result of an extension of services which the contractor or subcontractor is not A further explanation of “direct costs” is added to the legislation, which specifies that the term is meant to include reasonable costs relating to the additional supply of services or materials, insurance and surety bond premiums, and the cost of seasonal conditions that were incurred because of the extension;
- New Financial Thresholds for Substantial Performance: Under the new Act the financial thresholds for when a contract is substantially performed will be increased from 3% of the first $500,000 of the contract price, to $1,000,000; 2% of the next $500,000 of the contract price to $1,000,000; and 1% of the balance of the contract. The new legislation also requires that the contents of a certificate or declaration of substantial performance to include the legal descriptions of the premises, including all PINS and the addresses for the premises;
- Minor Errors and Irregularities: Under the new amendments it will become harder to invalidate a certificate, declaration or a claim for lien for minor errors or irregularities to an owners’ name, the legal description of premises or the address for service, unless a court finds that a person has been prejudiced by the minor error or irregularity;
- New Alternative Forms of Holdbacks: The new amendments introduce new alternative forms of holdbacks such as letters of credit, demand-worded holdback repayment bonds, and any other form that may be prescribed by regulations will be introduced;
- Holdback Release Provisions: The new amendments will enforce new mid-project release of holdbacks on a phased and annual basis when certain criteria are met. There will also be new mandatory release of holdbacks when lien rights expire, except where: (i) an owner refuses to pay the amount of the holdback and publishes a notice of non-payment within 40 days of the publication of a certificate of substantial performance; and (ii) notifies the contractor of the publication of non-payment. Additionally, in the second wave of amendments starting in October 1, 2019, where an owner refuses to pay, contractors and subcontractors will also be able to refuse to distribute holdbacks as long as they refer the matter to adjudication and provide notice to all affected parties who would otherwise be receiving payment; and
- New Prescribed Notice of Lien Form: A new prescribed form for a “written notice of lien” must be used for a lien to be valid and this form must be served in the same manner as an originating process.
Transitioning from the Construction Lien Act to the Construction Act
Despite the amendments coming into force before July 1, 2018, the former Construction Lien Act will continue to apply to the following improvements:
- a contract entered into before July 1, 2018, regardless of when any subcontract under the contract is entered into;
- a procurement process commenced before July 1, 2018 by the owner of the premises; and
- for premises subject to a leasehold interest, where the lease was first entered into before July 1, 2018.
So, how will the Construction Act affect the Condominium Industry?
The new Construction Act places a new set of obligations on claimants seeking to preserve a lien against a condominium project. Where a lien is registered against a condominium project after the declaration and description has been registered under the Condominium Act, 1998, a lien claimant seeking to preserve their lien against an improvement to the common elements must: (i) give notice of the lien’s preservation in the prescribed form to the condominium corporation and to every unit owner; and (ii) register their claim for lien against all units that make up the condominium.
Also under the new amendments, if the lien falls under the Construction Act, unit owners will not be able to obtain a discharge of their portion of the lien by paying to the lien claimant the amount of the lien owing that is attributable to the owner’s common interest. Instead, all condominium unit owners will have to bring a motion to court to vacate a lien and post security in the amount equal to the lien that is attributable to the owner’s share in the common elements as set out in the Corporation’s declaration.
In addition, the new Construction Act has placed additional changes to the Notice of intention to register a condominium by a developer. Prior to the new amendments, a developer had to publish a notice of the intended registration of a condominium in a construction trade newspaper at least five and not more than 15 days, excluding Saturdays and holidays, before the description was submitted for approval under subsection 9(3) of the Condominium Act. However, under the new amendments to the Construction Act, these timing requirements have been completely removed and now developers must publish their intention to register a condominium in accordance with “the manner set out in the regulations”. However, the government has yet to set out such regulations.
While the new Construction Act represents, yet again, another change for the condominium industry, it important to keep abreast of these amendments as they will come into play where there is a lienable improvement to any condominium project after July 1, 2018.
This post was written by Danielle Swartz of Lash Condo Law. For more information or to contact Danielle, click here.