“Contracting Out” of the Two-Year Limitation Period in Construction Contracts

Continuing our series on limitation periods, this post reviews a recent construction case that addresses the right of businesses to “contract out” of the two-year limitation period that might otherwise apply, and how this decision impacts potential third party claims.

Contracting out of the two-year limitation period in construction agreements

The Limitations Act, 2002 permits certain parties to agree to alter the general limitation period. This alteration is permitted as long as none of the contracting parties are individuals acting for personal, family or household purposes. Businesses, and individuals acting for business purposes, can otherwise agree by contract to extend, shorten or suspend the limitation period, provided they do not go beyond the ultimate limitation period of fifteen years.

This is common practice in the construction industry; many construction contracts include provisions that set a time limit for claims arising from the project.

How does contracting out impact other parties?

As discussed in our previous post, construction projects involve multiple parties and a series of contracts and subcontracts that govern their relationships. This can lead to situations where the terms of a contract can impact the rights and liabilities of third parties.

In Weinbaum v. Weidberg, the plaintiff owner contracted with an architecture firm, Makow Architects (“Makow”), to design and build their home. The contract included a limitation of liability clause precluding any claims against Makow commenced more than six years after substantial completion of the project.

Fourteen years after substantial completion of the work, the plaintiff discovered extensive water damage and mould growth in the home. He brought a claim against the construction manager, Weidberg, for deficiencies. The claim was brought within two years of the plaintiff discovering the damage, and was therefore within the basic limitation period.

In response to the claim, Weidberg denied liability, and initiated a third party claim against Makow. The claim was based in negligence, alleging that Makow was wholly or partly responsible for the losses. The claim did not rely on a contractual indemnity clause, and was commenced within two years of Weidberg being served with the claim.

Makow argued that Weidberg’s claim for indemnity was limited by the provisions of their own contract with the plaintiff. Since the contract barred any claims against Makow commenced by the owners more than six years after substantial completion, they claimed that they could not be sued for contribution in a claim by the owners that was initiated outside of that time frame.

The Ontario Divisional Court agreed, and concluded that the right of businesses to set their own limitation period through contract superseded the two-year period for commencing third party claims under the Limitations Act, 2002. The third party claim against Makow was dismissed, and Weidberg had no claim for indemnity against them.

Implications of this decision for construction contracts

This decision has important implications for any party involved in a construction project. It is always prudent to review the limitation terms of any contract related to the project to consider how this could impact your rights.

The Construction Law team at Duncan, Linton LLP can offer sound advice regarding existing and prospective construction contracts, and how they may impact your right to contribution and indemnity in the event of a claim. If you would like to speak with one of our dedicated lawyers, contact us online or call 519-886-3340 to make an appointment.