Is Your Condominium Ready for the New Construction Act?

Mark Giavedoni Gowling WLG (Canada) LLP

You may have heard the rumblings over the last 18 months: the Construction Lien Act has been reframed and rebranded as the Construction Act and completely overhauls the construction process for all types of construction projects—big or small. On July 1, 2018, a number of modernization amendments took effect and extended some critical timeframes for participants in a construction project to register their liens. The Act also clarified certain definitions, confirmed the holdback and trust obligations, and modified other processes for construction projects that commenced on or after July 1, 2018. On October 1, 2019, the second phase of the changes came into effect, which fundamentally changed the way that construction contracts are administered, payments made, and disputes adjudicated. While there are some rules about which legislation applies to certain projects based on their start date, for the most part, these changes will begin on October 1 and significantly change the way construction disputes are handled.

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Prompt Payment

The essence of a new prompt payment regime is that once a contractor submits a proper invoice for work performed (there is a new definition of what constitutes a Proper Invoice), the owner has 28 days to pay the invoice, subject to the mandatory 10% statutory holdback. If the owner disputes any portion of that invoice, it has only 14 days to issue a notice of non-payment in the correct form. Any party down the construction chain who disputes that has seven days to file a notice of adjudication with whom they have a contract. That triggers the commencement of the adjudication process to hear a dispute.

Adjudication

The adjudication regime is a dispute resolution forum whereby an independent adjudicator is appointed from a panel of qualified adjudicators from the nominating authority (ADR Chambers in Toronto) to quickly hear and adjudicate disputes relating to the construction contract. This could be anything from the amount owed, the work performed, the interpretation of the contract. The adjudicators have broad powers to hear disputes in a variety of forms, including teleconference, written submissions, or in-person hearings. They are expected to be like informal arbitrations; however, the decision of the adjudicator is final. The costs and time involved in these adjudications will definitely need to be considered, budgeted, and administered.

Implication for Condominiums The main changes to the Construction Act that came into force October 1, 2019 will have challenges for condominium corporations in being nimble enough to respond to the tight timeframes of the prompt payment regime or if there are any disputes where the amount is contested. A failure to respond to a notice of adjudication or to issue a notice of non-payment could make the condominium corporation liable for costs it was otherwise prepared to dispute, together with interest at the rate stipulated in the contract, which could be significant.

Triggering an adjudication can have significant implications for condominium corporations who may not be prepared to deal with the process, costs, schedule, and amassing evidence to respond to a surprise hearing. Budgets for construction projects should factor in contingencies for these costs, as condominium corporations often do not have revenue outside of common expenses and reserve funds to deal with these costs.

“The first few projects after October 1, 2019 should be conducted with advice to ensure timing, disputes, and processes are handled properly, and to make sure rights or obligations are not getting missed.

”Directors and property managers should be aware of these changes when entering into contracts for repairs and replacements and get legal advice as to whether the type of improvement is captured under the old or new laws. The first few projects after October 1, 2019 should be conducted with advice to ensure timing, disputes, and processes are handled properly, and to make sure rights or obligations are not getting missed.

Lien rights are still available to contractors and subcontractors who don’t get paid. Particular attention should be paid how these lien claimants enforce their liens. The lien must be registered within 60 days (no longer 45 days) after the last supply or the substantial performance of that contract. The new adjudications are meant to be heard and resolved before the 60-day period ends but lien claimants may still register anyway. Careful!

Lien claimants must not register against units if the work was on common elements only and provided there are separate parcel identification numbers (PINs) for those common elements. Improper registration may expose unit holders to damages and the condominium corporation will be left to sort out who is responsible for that. There is a prescribed form of notice (Form 13) that a contractor must give to condominium corporations and unit owners if they are claiming a lien against condominium property.

Because condominium corporations are usually run by volunteer directors who have other jobs, commitments, and schedules, it will be very easy to miss these new obligations and deadlines. Directors should be vigilant and ask questions of their managers and legal counsel to establish prudent processes and communication and response controls to ensure construction projects run smoothly, and to be ready to deal with issues under this new reality.

Mark Giavedoni is a Partner at Gowling WLG (Canada) LLP’s Hamilton Office and assists corporations, owners, directors and property managers in all aspects of condominium governance, development and dispute resolution.