No payment, no problem Lien Legislation reform which makes sense and saves dollars Preamble: One of the primary purposes of the Construction Lien Act, R.S.O. 1990, CHAPTER C.30 (the “CLA”), and General, RRO 1990, Reg 175 (the only Regulation under the CLA) is to provide a mechanism which would permit the creation of a collateral security, with respect to amounts unpaid for services and materials supplied to the improvement of land. The collateral security is created by way of a lien against the premises. However, once the prescribed period for registering a lien has expired, a collateral security is no longer able to be created. Contractors (including Subcontractors, Sub-subcontractors and Suppliers) face a conundrum when deciding whether or not to register a lien prior to the relevant expiration of their lien rights. The conundrum exists due to the fact that a progress application (or progress applications) under the contract may not be due; however, because substantial performance of the contract has been certified, if those due amounts are not received prior to the expiration of the rights to register a lien, the lien rights will be relinquished. Potential Solutions: Two conceivable options to be considered with the intent of creating a mechanism which could ensure that lien rights do not expire during this period are Option No.1: A ‘tolling agreement;’ or Option No.2: An ‘interim lien.’ Every Province and Territory
in Canada under a Common Law legal system has Provincial/Territorial Statues which are intended to provide rights and remedies for those who supply services or materials or both, with respect to the improvement of land. Throughout the Provinces and Territories, Statutes vary by title (Builders Lien Act, Construction Lien Act, Mechanics Lien Act), expiration of rights for registering a lien (30 days to 90 days), prescribed periods for retaining holdback (30 days to 60 days*)1 (Lal, 2013), and the amount withheld as holdback (ranging from 7.5% - 20%). Quebec is Canada’s only province which is not under a Common Law legal system; however, Quebec’s Civil Law legal system provides for a similar rights and remedies under the Civil Code of Quebec, a legal hypothec which is commonly referred to as a ‘construction hypothec.’ In Ontario, under the CLA, section 22 and 31 address 1) Expiration of rights for registering a lien; 2) Prescribed period for retaining holdback; and 3) Amount withheld as holdback which we would explore further.
occurrence of the earlier of, (i) the date on which a copy of the certificate or declaration of the substantial performance of the contract is published as provided in section 32, and (ii) the date the contract is completed or abandoned.2 (Ministry of the Attorney General, 2011) 2) Prescribed period for retaining holdback s. 22. (1) Each payer upon a contract or subcontract under which a lien may arise shall retain a holdback equal to 10 per cent of the price of the services or materials as they are actually supplied under the contract or subcontract until all liens that may be claimed against the holdback have expired as provided in Part V, or have been satisfied, discharged or provided for under section 44 (payment into court). R.S.O. 1990, c. C.30, s. 22 (1).
Key Points 1) Expiration of rights for registering a lien s. 31. (2) Subject to subsection (4), the lien of a contractor, (a) for services or materials supplied to an improvement on or before the date certified or declared to be the date of the substantial performance of the contract, expires at the conclusion of the fortyfive-day period next following the
18 | CONSTRUCTION ECONOMIST | www.ciqs.org | Winter 2015
• The inherent flaws of the CLA • The need for legislative reform of the CLA • The relative ease of reforming the CLA • The negative impacts as a result of these flaws • Create greater awareness of obligations/rights
