How will the new Construction Act change the rules of the game for Barrie and GTA-area general and subtrade contractors?
Lawyers Scott Fairley, Eric Gionet and Andrew Wood from Dooley Lucenti LLP explained to Barrie Construction Association (BCA) members at a recent seminar that the new rules will require some immediate changes in trust account procedures, among other things, while the legislation’s transitional provisions will mean that other aspects of the rules will take a varying length of time to implement.
Fairley said that because the rules are so new – the first set of amendments went into effect on July 1 – the legislation’s provisions have not been tested in the courts, so there are many areas where there is some uncertainty about the law’s details. In previous years, he and his colleagues could confidently give answers based on previous Construction Lien Act court decisions, but now they must make interpretations based on the text of the new amendments and regulations, which have not yet been tested in the courts.
“In previous seminars, attendees provided questions, and we could give answers,” Gionet said. “Now, Scott and I provide our opinions about how the law may, or should, play out after July 1 as it is applied to specific fact situations, and what judges and masters may do with the new wording, especially the transition provisions.”
Gionet said the transition provisions are especially challenging, because they were built into the legislation near the final stages of the legislative process and were not subjected to the earlier review and extensive consultation process as part of Bruce Reynolds and Sharon Vogel’s review of the old Construction Lien Act.
They are also more challenging because they come in two stages. The first set of changes, which went into effect on July 1, applies to projects in which (1) the contract is entered into after July 1, (2) the procurement process commenced after July 1, or (3) the premises is subject to a lease that is entered into after July 1. These changes include extending the lien preservation deadline from 45 to 60 days, and the lien perfection deadline from 90 days to 150 days. The new amendments also require contractors to properly account for their work in specific trust accounts.
The bigger changes – setting out prompt payment requirements and a new dispute adjudication mechanism – take effect in October 2019. When that date arrives, things may get even more complicated, because there will be different sets of rules for different fact situations, depending on how the still un-interpreted transition provisions are applied.
The lawyers say that it probably will require at least a full construction season for the larger industrial, commercial or institutional projects to come under the new act’s provisions, but the story will be different in relation to smaller residential construction and renovations, when many projects will commence after July 1 and be completed before the end of this summer.
In part, the confusion will be magnified because while these smaller, generally residential, projects have always been subject to the former Construction Lien Act, many contractors and owners often were unaware and thus didn’t adhere to the old rules. “In these situations, there were some contractors and owners who had no clue about the old Construction Lien Act requirements, and there’ll likely be even more confusion for them under the new rules,” said Gionet.
“How many times would you have a homeowner building a custom home or cottage, where they wouldn’t have holdbacks in case the project goes sour? The new act will provide for requirements to give particular notices with respect to payment. We are holding seminars such as the BCA seminar to help improve the general knowledge of the new requirements,” Fairley said.
A key factor for many of these projects will be the day you sign the contract. “It is important for people to know that the date the contract is entered into will have an important effect on the timeliness of lien rights.”
Matters may be even more complicated by transition provisions in the new act relating to premises subject to leasehold interests, which could cause confusion many years down the road. For example, Fairley said, there may be premises that are subject to long term leases prior to July 1 that may not benefit from the new amendments based on the wording of the transition provisions, since such premises would appear to be governed by the old act even for work that is done many years down the road.
“I expect that the leasehold interest portion of the transition provisions is going to give us a lot of headaches and will need to be interpreted by the courts to provide us with some clarity,” Gionet said.
In this confusing environment, how should contractors prepare and adjust for the new rules?
The lawyers suggest the best approach to take is conservative, erring on the side of caution as it relates to the measures you should take and the assumptions about lien deadlines and documentation requirements. For example, contractors should check with their accountants and make sure that their trust accounting system is in order immediately.
The new rules require contractors and subtrades to maintain written records regarding trust funds, detailing amounts paid into and out of the trust, and transfers, in a separate trust bank account. (The regulations indicate that contractors don’t require separate bank accounts for each project, but they must keep good trust account documentation and ensure that the overall trust funds are segregated in a separate trust account and not intermingled with regular operating funds.)
Regarding lien preservation and perfection deadlines, while the new rules allow for longer periods, they suggest you assume the old rules apply, unless you are confident and have legal advice that you have the extra time to assert your rights – and you follow the notification rules under the new law.
The new law has many other provisions, including surety requirements and processes for public sector projects.
“I realize this may come off as sounding self-serving, but I recommend contractors check with their lawyers familiar with the Construction Act,” said Gionet. “You really need to understand and be ready for the major changes ahead.”
Both lawyers are optimistic that these major changes will benefit the construction industry and improve the flow of funds once fully implemented. They say they are hopeful that the transition is as smooth as possible and does not detract from the substantial benefit of the new act.