Bill 142 – Changes to Lien, Trust Account & Holdback Rules

Ontario’s construction industry is awaiting an amended Construction Lien Act, which is expected to pass in early 2018. As the final installment of our series about Bill 142, this post will review the proposed amendments to provisions relating to liens, holdback payments, and trust accounts. Earlier installments have reviewed the proposed prompt payment regime and mandatory adjudication process, as well as the treatment of public private partnerships.

Extended deadlines for preservation and perfection of liens

The deadline for preservation of liens will be increased to 60 days from the applicable date (from the current  45 days), and perfection of liens must be completed within 90 days of the last possible date on which the lien could have been preserved, extended from 45 days under the current law. These longer timelines are intended to provide additional breathing room for parties to resolve issues between them before proceeding with a lien, and thereby encourage settlement over litigation.

Under the amended Act, once lien rights expire, and no notice of non-payment is delivered to register a dispute, payment of the holdback is mandatory.

A series of amendments dealing with holdback payments

The amendments also seek to provide additional certainty regarding holdback payments, and codify existing commercial practices. Holdback payments may be made on an annual basis, or through an agreed-upon set of phases or portions, to reflect the long-term nature of many modern construction projects. In addition to phased or site-by-site holdback, and in certain circumstances to be determined by regulation, parties may be permitted to partially release holdback on an annual basis.

The holdback will no longer need to be maintained in cash, and may be maintained instead through a letter of credit or demand repayment bond. Other acceptable mechanisms may be established by regulation.

Contractor’s obligations relating to trust accounts

Under the proposed amendments, contractors and subcontractors will be required to keep more thorough trust accounting records for each construction project. These should include, at a minimum, details of amounts paid from or received in trust, and any transfers made. Future regulations may impose additional requirements regarding trust funds and accounting.

Significantly, Bill 142 will deem traceable any commingled trust funds that are deposited into a single account. This means that contractors mixing funds from separate trusts are not committing a breach of trust. It is hoped that this will also mean that trust beneficiaries’ claims to such funds will not be subject to a bankruptcy on the part of a contractor, but the issue of how these provisions will interact with the provisions of the Bankruptcy and Insolvency Act will require determination by the Courts.

Kitchener-Waterloo construction lawyers advising on Bill 142

These upcoming amendments to lien, holdback and accounting rules could potentially impact all construction industry participants, including owners, contractors, and subcontractors. At Duncan, Linton LLP, our construction team keeps on top of the latest developments in the law, and translates this into practical advice for our industry clients. Our skilled lawyers can help new and existing clients determine how their businesses may need to adapt to Bill 142 and the new Construction Act, and implement proactive strategies to get ahead of these coming changes. Contact us online or call 519-886-3340 to make an appointment.