Key Changes to the Construction Lien Act (Now the Construction Act)

Amendments to the construction lien and holdback provisions

The following chart outlines some of the key amendments to the construction lien and holdback rules that came into force on July 1, 2018.

The chart does not cover the changes related to prompt payment, adjudication and liens against municipalities, which will come into force on October 1, 2019.

The full text of the amended Construction Act and supporting regulations is available on e-Laws.

The following chart outlines some of the key amendments to the construction lien and holdback rules that came into force on July 1, 2018.
Current Rule (Until June 30, 2018)What is Changing on July 1, 2018
Updated Definitions
  • The Act does not refer to “capital repair” or “direct costs”.
  • Section 1 of the Act has been amended to add the term “capital repair” to the definition of “improvement”. Capital repairs are those that extend the normal economic life or improve the value or productivity of the land or building.
  • The term “direct costs” has been added to the definition of “price”. It means reasonable costs of performing the contract or subcontract if a project is delayed but does not include indirect damages.
  • The Act does not refer to “broader public sector organization”.
  • Section 1 of the Act has been amended to add the term “broader public sector organization” which has the same meaning as under the Broader Public Sector Accountability Act, 2010.
  • The Act does not refer to “monetary supplementary benefit”.
  • Section 1 of the Act has been amended to add the term “monetary supplementary benefit” which includes any contribution, remittance, union dues, deduction, payment or other additional compensation of any kind.
  • The definition of “municipality” is based on the definition in the Municipal Affairs Act.
  • The definition of “municipality” has been amended to refer to the definition of “municipality” in the Municipal Act and the definition of “local board” in the Municipal Act or City of Toronto Act, 2006.
  • The Act describes what a “written notice of a lien” should contain.
  • A prescribed form is required for a “written notice of a lien”. The form must be given by a person who has a lien.
New rules regarding alternative financing and procurement arrangements (AFP)
  • The Act does not contain provisions relating to AFPs.
  • The Act applies, with some modifications, to a project agreement between the Crown, a municipality or a broader public sector entity with a special purpose entity in relation to AFPs as if the agreement were a contract. It also applies to agreements between the special purpose entity and the contractor as if the agreement were a subcontract.
  • The agreement between the special purpose entity and the contractor applies for determining the amount of the holdback.
  • The special purpose entity is deemed to be the owner of the premises with respect to the following sections of the Act:
    • Section 31 (Expiry of liens)
    • Section 32 (Certification or declaration of substantial performance)
    • Section 33 (Certificate re subcontract)
    • Section 39 (Right to information)
Updated thresholds for substantial performance
  • Subclauses 2(1)(b)(i)-(iii) of the Act provide that a contract is substantially performed when the improvement to be made under the contract is capable of completion, or where there is a known defect, correction, at a cost of not more than 3 percent of the first $500,000 of the contract price, 2 percent of the next $500,000 of the contract price, and 1 percent of the balance of the contract price.
  • The thresholds for substantial performance under subclauses 2(1)(b)(ii) and (iii) have been amended to increase the threshold from $500,000 to $1,000,000 in each instance.
Examples of minor errors or irregularities
  • The Act provides parties with a remedy for minor irregularities but does not set out specific errors or irregularities.
  • Section 6 has been amended to include specific circumstances in which minor errors or irregularities in a certificate, declaration or claim for lien can be saved from invalidation under the Act. These errors and irregularities include:
    • errors or irregularities in the name of an owner, person for whom services or materials were supplied, the payment certifier, the legal description of a premises, the address for service; or
    • putting the owner’s name in the wrong portion of a claim for lien.
Duties for trustees of trust funds
  • The Act does not contain specific requirements for trust account bookkeeping.
  • Section 8.1 of the Act imposes duties on contractors and subcontractors who are trustees of trust funds. These requirements include:
    • Depositing trust funds into a bank account in the trustees name;
    • Maintaining written records of trust funds, including the amounts received into and paid out of the funds and any transfers made; and
    • If the person is a trustee of more than one trust under Section 8, the trust funds may be deposited together in a single bank account.
New rules for holdbackPermissible forms of holdback
  • The Act does not specify the form in which the holdback should be maintained.
  • Section 22 of the Act has been amended to provide for the holdback to be retained in funds (cash), a letter of credit or holdback repayment bond and forms for these instruments are included in the regulations.
Payment of holdback
  • Payment of the holdback is permissive once liens that may be claimed against the holdback have expired or been satisfied, discharged or provided for under Section 44 of the Act.
  • Sections 26 and 27 of the Act have been amended to require the payment of the holdback once all liens that may be claimed against the holdback have expired or been satisfied, discharged or otherwise provided for under the Act.
Annual and phased release of holdback
  • The Act does not provide for the holdback to be released on an annual or phased basis.
  • Sections 26.1 and 26.2 of the Act provide that holdback may be released on an annual or phased basis if certain conditions are met, including the following:
    • The contract provides for such payment;
    • The contract price is $10 million or higher; and
    • There are no preserved or perfected liens or all liens have been satisfied, discharged or otherwise provided for under the Act.
Non-payment of holdback
  • The Act does not provide for a notice of non-payment of holdback.
  • An owner may refuse to pay some or all of the holdback if the owner does the following:
    • Publishes a Notice of Non-Payment of Holdback (Form 6)* no later than 40 days after publication of certification or declaration of substantial performance; and
    • Notifies the contractor of the publication of the notice in writing (electronic or paper format) within three days of publication.
New rules for construction liensSet-off
  • In determining the amount of a lien, set-off applies with respect to outstanding debts, claims or damages whether or not related to the improvement.
  • Section 17 of the Act, which provides for set-off in relation to the lien, has been amended to limit set-off in relation to other contracts except in situations where the contractor or subcontractor has become insolvent.
Preservation of liens
  • Liens must be preserved within 45 days of the publication of substantial performance of the contract or the date the contract is completed or abandoned. Where there is no certification or declaration of substantial performance or the services or materials are supplied after substantial performance, the lien must be preserved within 45 days of the date the contract is completed or abandoned.
  • Section 31 of the Act has been amended to increase the deadline to preserve a lien from 45 days to 60 days.
  • Termination of a contract has been added as a trigger in determining the timeline for preserving a lien. If a contract is terminated, a Notice of Termination under Subsection 31(6) (Form 8) must be published by the owner, contractor or a person whose lien is subject to expiry.
Workers’ trust fund lien
  • The Act does not contain specific reference to the lien of the trustee of a workers’ trust fund or to termination of a contract.
  • The lien of a trustee of a workers’ trust fund for services or materials supplied on or before substantial performance of the contract expires 60 days after the earlier of,
    • The publication of substantial performance,
    • The date on which the final workers last supplies services or materials to the project,
    • The date the contract is completed, abandoned or terminated, and
    • The date a subcontract is certified to be complete (where applicable).
  • The lien of a trustee of a worker’s trust fund relating to services or materials supplied where there is no certification or declaration of substantial performance, or after substantial performance, expire 60 days after the earlier of,
    • The date on which the final worker who is a beneficiary of the workers’ trust fund last supplied services or materials,
    • The date the contract is completed, abandoned or terminated, and
    • The date a subcontract is certified to be complete (where applicable).
Perfection of liens
  • Liens must be perfected within 45 days of the last day the lien could have been preserved.
  • Section 36 of the Act has been amended to increase the timeline to perfect a lien from 45 days to 90 days.
New rules regarding the right to information
  • The Act provides that a state of accounts may be requested but does not describe what it must contain.
  • The Act does not contain provisions relating to information that may be requested from landlords or about payments based on the completion of phases or milestones.
  • Section 39 of the Act has been amended to clarify the right to require information from an owner or contractor in relation to:
    • The state of accounts between the owner and the contractor with specific information; and
    • A statement of whether the contract provides for payment based on the completion of specified phases or milestones.
  • Similarly, there is now a right to request information from a contractor or subcontractor in relation to the state of accounts between the contractor and a subcontractor or between a subcontractor and another subcontractor.
  • Subsection 39(4.1) sets out the information that must be contained in a state of accounts.
  • A landlord whose interest in the premises is subject to a lien must provide information relating to the lease and the state of accounts.
New rules regarding the discharge of preserved or perfected liensDischarge of liens
  • The Act provides that liens may be released by registration of Form 14 (Release of Lien under Section 41 of the Act).
  • Sections 41 and 42 of the Act have been amended to remove references to a “release” of a lien and replace it with a “discharge” of a lien in the prescribed form. Form 14 (Release of Lien under Section 41 of the Act) has been repealed and replaced with Form 19 (Discharge of Lien under Section 41 or 42 of the Act).
Vacating liens without notice
  • To vacate a lien without notice, Section 44(1) of the Act allows a person bringing a motion to pay into court, or post security, in an amount equal to the full amount claimed in the claim for lien and the lesser of $50,000 or 25% of the amount claimed, as security for costs.
  • The amount of security for costs has been increased to the lesser of $250,000 or 25% of the amount claimed in the claim for lien.
Court proceduresCourt procedures moved to new regulation
  • All court procedures are set out in Part VIII of the Act.
  • Part VIII of the Act has been amended to provide for court procedures to be prescribed by regulation. The Courts of Justice Act and the rules of court apply to actions under Part VIII except to the extent that they are inconsistent with the Act and prescribed procedures.
  • The new court procedure regulation under the Act (Procedures for Actions under Part VIII) contains procedural provisions that were removed from the Act in order to enable greater flexibility for future amendments, if necessary.
Joinder of lien claims with trust claims
  • Lien claims cannot be joined with trust claims.
  • The prohibition on joinder of lien claims and trust claims has been removed.
New requirement for surety bonds
  • The Act does not contain a requirement for surety bonds on public projects.
  • Part XI.1 has been added to the Act to establish requirements for a contractor who enters into a contract with an owner that is the Crown, a municipality or a broader public sector organization (a “public contract”) to provide the owner with a labour and material payment bond and with a performance bond, if the contract price is above the amount set out in the regulations.
    • The general regulation under the Act provides that the contract price must be $500,000 or higher.
  • The surety bonds must meet the following requirements:
    • Both bonds must be issued by an insurer that is licensed under the Insurance Act to write surety and fidelity insurance, have a coverage limit of at least 50% of the contract price and extend protection to subcontractors and suppliers.
    • Labour and material payment bonds must extend protection to subcontractors and persons supplying labour or materials to the improvement.
  • The bond forms are prescribed as Form 31 (Labour and Material Payment Bond under Section 85.1 of the Act) and Form 32 (Performance Bond under Section 85.1 of the Act) in the new Forms regulation under the Act. They include a detailed claims process.
  • The new requirement does not limit the ability of the owner to require other types of bonds or security.
Surety Bonds and AFPs
  • The Act does not contain a requirement for surety bonds on AFPs
  • The surety bonding requirements in Part XI.1 of the Act apply to the agreement between the special purpose entity and the contractor with the following modifications:
  • The owner may require a coverage limit other than 50% of the contract price provided that it meets or exceeds any coverage limit that may be prescribed for AFP projects.
    • The general regulation provides that the minimum coverage limit for AFP projects is 50% of the contract price if the contract price is $100 million or less or $50 million if the contract price is more than $100 million.
  • The total security must reflect an appropriate balance between the adequacy of the security to ensure the payment of persons supplying services or materials under the public contract on the one hand and the cost of the security on the other.
Publication of Documents
  • References to publication of documents in a “construction trade newspaper” are set out in the Act.
  • The definition of “construction trade newspaper” has been repealed in the Act and moved to the general regulation. Provisions relating to publication of the following forms are set out in the general regulation:
    • Notice of Non-Payment of Holdback (Form 6)
    • Notice of Termination under Subsection 31(6) (Form 8)
    • Certificate of Substantial Performance (Form 9)
    • Notice of Intention to Register a Condominium in accordance with the Condominium Act, 1998 under Section 33.1 of the Act (Form 11).

*Note: All form numbers have changed. A list of the forms is set out in the forms regulation. The forms are available on the Ontario Court Forms website.