Contractor and Subcontractor Trust Funds

The recently enacted Construction Act (the Act) sets out new, more onerous duties for contractor and subcontractor trust funds, marking a change from the obligations that existed under the former Construction Lien Act (CLA).

The CLA simply required that funds that were deemed trust funds could not be converted to a use inconsistent with the trust until all subcontractors and suppliers were paid in full. This is no longer the case.

Section 8.1 of the Construction Act

Section 8 of the Act outlines the basic trust fund obligations of contractors and subcontractors involved in building projects. Under the section, the trustee (i.e. the contractor or subcontractor as defined by the Act) must comply with specific requirements for trust funds.

Section 8.1(1)

This section requires that:

  • The trustee deposit trust funds into a bank account that is in the trustee’s name (if there is more than one trustee, all of their names will be on the account);
  • The trustee make and keep handwritten records of the trust funds, including details of the amounts received into the funds, amounts paid out of the funds, and any transfers made for the purposes of the trust;

In addition, if the trustee is a trustee under more than one s. 8 trust (a mixed trust), the trustee is allowed to deposit the funds into a single account, as long as the trustee maintains the above records with respect to each trust.

Section 8.1(2)

This section outlines a deemed traceability provision intended to address issues regarding competing interests where there is a bankruptcy or where claims to the trust are made.

Essentially, if trust funds from separate trusts are deposited into one trust account, the funds are deemed traceable, and such a deposit will not be considered a breach of trust.

What Do These Changes Mean, Practically Speaking?

Notably, these amendments create no obligation for a trustee to maintain a separate bank account for each project, however, records must clearly indicate which funds belong where.

At Duncan, Linton LLP our highly skilled Construction Law Group proactively advises clients on their trust fund obligations under the new Construction Act, and during the transition period when the old Construction Lien Act continues to apply to certain projects.

We regularly counsel clients on administering trust funds properly and other best practices. If an issue around trust funds arises, we have significant experience in both advancing construction trust claims and defending against these claims.

We have represented construction clients at all levels of the construction pyramid in Waterloo Region and across Ontario for more than 150 years. We are the oldest independent law firm based in Waterloo Region and is one of the oldest law firms in all of Ontario. Call us at (519) 886-3340 or contact us online to speak to one of our construction lawyers