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If you condo board was overwhelmed with the challenges of the pandemic in 2020, you might have missed out on the new Construction Act that came into play in the fall of 2019. Here we offer a refresher course to help you understand how the new lien and holdback rules could affect you.
What is the Construction Act?
The Construction Act was actually the Construction Lien Act until July 1, 2018. Amendments to the original lien and holdback regulations applied to prime contracts signed after July 1, 2018. However, a new act came into effect on October 1, 2019, introducing rules addressing prompt payment for work. If your condo enters into new contracts or has contracts underway since October 2019, your agreement is subject to these rules.
Construction Liens and Holdbacks 101
Construction liens placed against property titles ensure construction companies receive payment promptly for their work. Holdbacks are an Ontario regulation requiring all owners, contractors and subcontractors withhold 10% of the cost of the services and/or materials they supply on a project to help cover potential liens. This amount releases when the lien period expires.
Changes to Lien Periods
A new provision in the Act increases the period in which a contractor can register a lien from 45 days to 60 days. As well, the lien perfection period increases from 45 days to 90 days. These extensions provide the contractor more time to register an action against the owner and start legal proceedings. When entering into a contract therefore, owners and boards should pay close attention to dates.
Next, the term substantial performance reflects the time the majority of the work a contractor is hired to do is complete. In the older version substantial performance was claimed when the work remaining was:
- 3% of the first $500,000
- 2% of the next $500,000
- 1% of the contract balance
In the revised version this changes to:
- 3% of the first $1 million
- 2% of the next $1 million
- 1% of the contract balance remains the same
The purpose of this revision is to allow the contractor to find their work is “substantially complete” at a more reasonable stage of the job.
In most cases, this revision has minimal impact on your corporation. Instead it changes the criteria for requesting holdback and the level of completeness from “the lesser of $1,000 or one per cent of the contract value” to “the lesser of $5,000 or one per cent of the contract value.” It just means contractors can apply for release sooner.
Prompt Payment Changes
The time limit to pay the contractor following receipt of a “proper” invoice changed to 28-days. As a result, invoicing schedules not covered in the contract automatically default to a monthly invoicing schedule. To avoid this, request a milestone payment schedule when drawing up the contract. If you have an issue with the invoice presented, you have 14 days to dispute it by issuing a notice of non-payment with the contractor. Keep in mind the unpaid amount is subject to interest. A contractor can stop work underway until they get paid for work completed.
If you do have a dispute, you now must enter binding adjudication with either an assigned or chosen adjudicator. To file a dispute, you have 14 days from the day you receive the invoice to send a written notice of adjudication to the contractor. The adjudicator takes about six weeks to issue a determination. If the decision is disputed, it will end up in court for settlement.
The condo experts at CPO Management Inc., are a fully licensed, full-service property management company in Toronto and the GTA. We have successfully implemented a number of major projects for residential high-rise condominiums, with a keen understanding of the Construction Act. Reach out to us today to learn more about our condo services.