Canada: On-Demand Seminar: Bill 142 – Liens, Holdbacks And Trusts (Video)

Last Updated: August 16 2017
Article by Neil S. Abbott

About this seminar

Neil Abbott, a partner in Gowling WLG's Toronto office, discusses liens, holdbacks and trusts and what industry participants can expect.


Full transcript

Neil Abbott

So it's just going to be me, not Natasha. Natasha's going to speak at the next go round. I'm a partner in the Toronto office and like LP I provide services in both official languages. For construction that means English and profanity. A few notes about the new Act. Some of you have heard this before. Neil is lien spelled backwards. They've taken me out of the Act. The new Act is going to be called the Construction Act. No longer the Construction Lien Act. The other thing to note, and we've talked about this little bit, about the Act coming into force. The end of the statute says that when the Act is proclaimed by the Lieutenant Governor that the, what I'll call the administrate of the simple things which Natasha and I have the obligation to speak about, will come into play immediately. Into force immediately. When the harder things, like subject to schedules, the Nominating Authority, all those regulations, they have yet to be drafted so we haven't seen the regulations. We haven't seen some of the prescribed forms and they won't come into force until passed by the Lieutenant Governor and council (ie: the cabinet) which means that this Act could come into force with respect to the simple amendments. The more complicated ones could be on the next government's watch and query whether they're going to rush it through or not. There's some statutes I've seen in other circumstances where the Act gets passed in 2002, in one case, and the regs weren't put into place until 2010. The adjudication piece is one that's still going to play out a little bit but it's coming in some form, in any event, and it will be on the books. Just the regulations are still yet to be drafted.

My presentation, I don't have slides, just the placeholder, because some of the issues I'm going to talk about are just basic things within the Act. The first one is, and by the way we have these little cards that we've passed out on your chair and they have the relevant sections of the Act, the new Act, in brackets after them. You can find that and I'm not sure if our hub has the consolidated statute on it. If it doesn't it should and we will add it to it. We have Bill 142. We've also done a blackline against the Construction Lien Act, for now anyway, so you can see where the changes are and come into place. As LP, as a litigator pointed out, litigators go and lift the exact precise language and the words specifically to see what they say. What is entered into, etcetera. A lot of the things that I'm going to talk about, Natasha our precise wording of the statute. The first thing is the lien, the lien itself. The Construction Lien Act had always 45 days in which to preserve your lien. 90 days from the date of last supplier. As the Act is actually worded, 45 days from last day in which you could have preserved a lien, to start your law suit. The new changes are this. You have to lien or your lien rights expire 60 days after your day of last supply. The holdback is still running in a 45 day schedule. So that's a big change. Before you had that, I don't know if its culturally appropriate to say, the Mexican stand-off where you had holdback and lien rights expiring on the same day. Now what they've done, they've given a breather, so the holdback period is still going to be 45 days from last supply or substantial completion, but your lien rights are going to run for an additional period of time. So it's 60 days to lien under the new Act. It'll be 90 days from those 60 days that you perfect your lien by starting a law suit. It's a longer time for negotiation and discussion, etcetera. You'll no longer be forced to these very, very quick timelines.

The second thing about lien's is that they have expanded the definition of what would constitute an improvement for the purpose of a lien and they've allowed, as Ted mentioned earlier, for the concept of what's called capital repairs in the Act and they've distinguished that from maintenance. Anything essentially that preserves the length of the project is a capital improvement and that is subject to a lien right, at this point in time. If you're just doing preventative maintenance that would not be an improvement that would be subject to a lien. That's again another important distinction when it comes to liens.

Moving along, because we have a lot to cover today, and as I say a lot of the stuff that I have is really just simple stuff in the Act. Holdbacks. The big debate has always been that the owner has this holdback and should they maintain it in cash or not. The new Act allows for holdbacks to be maintained in a form other than cash. You can have a letter of credit. You can have a holdback bond, etcetera. The second thing is is there is always a discussion about why won't you release the minimum holdback. I know you claim that there are extras to the contracts, etcetera and so the new Act has a mandatory provision that the minimum holdback amount must be released. It's a "shall". Shall be released when the 45 day period expires from the date of publication. You can no longer sit on the holdback, however, the owner can publish a notice in a prescribed form, which is yet to be drafted, as long as they do it within 40 days when the clock started. They publish the notice saying, "We're going to set-off against the holdback for various reasons." There's some notice to the world that holdback isn't going to be coming and you might want to get your lien rights going, etcetera. There's that new regime. The Act also provides for, and this is a "may" not a "shall", for early release of holdback on an annual basis or if you've got a project that has certain milestones, you may now release holdback on that basis as well. No longer will you have to wait until the very end, to substantial completion, and then holdback gets released. You can now have an option where holdback can be released earlier so it frees up cash to the earlier subtrades and contractors in the project. Those are the big changes surrounding holdback and they're found in section 17 to 25 of the Act.

The last thing I'm going to talk about is the new rules around trusts. Section 8 of the Act deals with the contractors trust. The Act is being amended to provide, and this is important, there's no longer going to be specific project bank accounts that are required for trusts, but the new Act says that every person who is a trustee shall comply with the following requirements: trust funds shall be deposited into a bank account in the trustee's name and if there's more than one trustee, the funds shall be deposited into a bank account in all of the trustee's names. So, you don't have to have a project specific bank account but you now have to deposit trust funds into a specific account that's marked as a trust account and you have to keep records. Even if it's not a project specific bank account you have to keep records of the funds in and out per project within that bank account. That's the new mandatory regime regarding application of trust funds for a project. That applies to the contractor, subcontractor's duties, the section 8 Trusts under the Act. That again will assist parties in identifying where the flow of funds are for the purposes of making trust claims. Natasha's going to speak to the amendments around trust claims and lien claims no longer having to be separate. But again, this just sort of modernizes the Act in those three areas. Okay, I think that's it. So over to Natasha. Thank you very much.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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