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Ontario Construction Act s. 87.3 Transition Provisions in Review

On May 6, 2021, the Ontario Superior Court of Justice released its first decision focused on the section 87.3 transition provisions of the Construction Act (the “Act”). The main takeaway from the decision is that the relevant date to trigger section 87.3 is the date of the “prime” contract between owner and contractor—not the date of any given subcontract. This is an important point. On any given construction project in Ontario, the transition provisions determine whether lien claimants benefit from the new Act or continue to be governed by the old Construction Lien Act (the CLA”).

In Crosslinx Transit Solutions Constructors v. Form & Build Supply (Toronto) Inc., 2021 ONSC 3396 [Form & Build], the court interprets the form and substance of the Act’s transition provisions. Form & Build affirms that the “contract” referred to in section 87.3 is the prime contract, not the date of a subcontract. The decision also provides a guideline for those navigating lien rights on large private developments and public infrastructure projects where the Act’s transition provisions are most likely to come into play.

The Section 87.3 Transition Provisions

The transition provisions are important for owners, landlords, contractors, trades, and financiers alike. Among many fundamental updates to the Act during its recent modernization, the time available to preserve lien rights was extended from 45 days to 60 days, and the time available to perfect lien rights was doubled from 45 days to 90 days. The new Act does not automatically apply. That depends on the application of the transition provisions in section 87.3:

Transition
Continued application of Construction Lien Act and regulations


87.3 (1) This Act and the regulations, as they read on June 29, 2018, continue to apply with respect to an improvement if,

  1. a contract for the improvement was entered into before July 1, 2018;
  2. a procurement process for the improvement was commenced before July 1, 2018 by the owner of the premises; or
  3. in the case of a premises that is subject to a leasehold interest that was first entered into before July 1, 2018, a contract for the improvement was entered into or a procurement process for the improvement was commenced on or after July 1, 2018 and before the day subsection 19 (1) of Schedule 8 to the Restoring Trust, Transparency and Accountability Act, 2018 came into force.

Same
(2) For greater certainty, clauses (1) (a) and (c) apply regardless of when any subcontract under the contract was entered into.

Three variables are critical for this evaluation: the date “a contract for the improvement” was entered into; the date “a procurement process for the improvement was commenced”; and whether the premises is subject to a leasehold interest.

Based on those variables, the old CLA and its more strict timelines apply in three circumstances:

  1. For non-leasehold improvements with a procurement process, the old CLA applies where a procurement process commenced prior to July 1, 2018.
  2. For non-leasehold improvements without a procurement process, the old CLA applies if a contract for the improvement was entered into before July 1, 2018.
  3. For leasehold improvements where the lease pre-dates July 1, 2018, the old CLA applies if a contract for the improvement was entered into, or a procurement process was commenced, between July 1, 2018 and December 5, 2018.

The initial threshold question when considering lien expiry timelines is therefore whether the section 87.3 transition provisions of the Act apply and bring the lien back into the domain of the CLA. A failure or inability to do so before exercising lien rights may prove fatal, as was the case in Form & Build.

Form & Build Brings Clarity

In Form & Build, an unpaid supplier registered two liens against stations in the Eglinton Crosstown Light Rail Transit (LRT) project in Toronto, Ontario. The liens were registered 56 days after the date of last supply.

The interpretation of section 87.3 came squarely into focus in this decision. If the reformed Act’s longer lien deadlines applied, the liens would have been valid, but if the older Construction Lien Act deadlines applied, the liens would be expired. Both the defendant and lien claimant agreed that section 87.3(1)(a) was applicable, but disagreed about its proper application.

The lien claimant argued that section 87.3 was ambiguous and that could apply to contracts and subcontracts based on the date they were entered into.

The court disagreed.

The starting point was a review of the applicable definitions in the Act. There was no ambiguity, the court held, because the definitions of “contract,” “improvement,” “contractor,” and “owner” were not reasonably capable of more than one meaning. What was particularly damning to Form & Build’s ambiguity argument, however, was that section 87.3 (2) expressly states that section 87.3 1 (a) and (c), specifically apply irrespective of the date any subcontract was entered into.

The court then went on to make four practical observations about the Act to explain why it would be dysfunctional to allow different lien rights to proceed on different timelines based on individual subcontract dates:

  1. Holdback liability, holdback payment dates, and notice requirements before withholding holdback would all be uncertain and varied if different versions of the Act applied to different subcontracts on a given improvement;
  2. Information demands, entitlement to information, and liability for failure to provide required information under section 39 would similarly be uncertain, because the requirements have been updated in the reformed Act;
  3. Landlord liability provisions have similarly changed, and anything but a uniform approach to the same improvement would potentially result in “inconsistent bases of liability” to the landlord from different claimants on the same improvement; and
  4. Trust fund obligations have similarly changed and increased in the reformed Act, so any possibility of different versions of the Act applying to the same improvement would mean that different obligations could be owed to different contractors.

The court further rejected the lien claimant’s arguments relating to unfairness, because there was no evidence that Form & Build did not know or could not have known the date the prime contract was entered into.

What Form & Build did not consider was whether multiple “prime” contracts between an owner and contractors could result in different “streams” of subcontracts, thereby causing different versions of the Act to apply to those streams. Based on the court’s first close examination of section 87.3 in this decision that takes a “mono-improvement” view of the Act’s purpose, it is uncertain whether a multi-improvement approach would be successful, even on different facts.

Section 87.3 will continue to remain relevant for the coming years on large projects across Ontario that had lengthy procurements pre-dating July 1, 2018 where the old Construction Lien Act may still apply. For now, owners, contractors and trades would be well advised to exercise information rights to get transparency into key dates, and abide by the stricter deadlines in the old Act wherever possible.

Construction Lien Act

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