As we covered in a previous blog post, construction liens are a commonly-used tool for contractors with legal claims for payment for goods or services provided to improve a property. The rules governing construction liens require adherence to Ontario’s Construction Act, RSO 1990, c C.30, which can create uncertainty and confusion regarding the process if you aren’t familiar with the legislation.
To make construction liens a little easier to understand, we’ll be providing a high-level overview of common construction lien topics over the coming months. Today, we’ll be talking about the meaning of “substantial performance” in Ontario’s Construction Act and its relation to construction liens.
Missing a deadline or filing the wrong document can extinguish a contractor’s ability to file a construction lien on the title. Be sure to consult with an experienced construction lawyer for guidance when filing a construction lien against a property.
What is a Construction Lien?
Construction liens – commonly referred to as “builders liens” outside of Ontario – are charges that contractors can register on the property if they have supplied work or materials to the property but have not received payment. By successfully registering a construction lien on a property, the contractor obtains a registered interest in the property. The construction lien then remains on the property until it is removed by court order or expires.
How is a Construction Lien Filed?
We covered the process for filing construction liens in a previous blog post. What’s important to note is the need for precision – there are many precise steps when filing a construction lien.
Construction Liens and “Substantial Performance” in Ontario
What does “substantial performance” have to do with construction liens? The right to file a construction lien is time-limited, and the timing is reliant on whether the contract has been “substantially performed”.
Under the Construction Act, construction liens must be filed or preserved within 60 days after the date the governing construction contract was completed or abandoned. In some cases, the governing construction contract will reference a certificate of substantial performance – here, and the 60-day countdown will begin when the certificate of substantial performance is published.
Definition of “Substantial Performance” under Ontario’s Construction Act
In s. 2 of the Construction Act, a contract is deemed to have been substantially performed “when the improvement to be made under that contract or a substantial part thereof is ready for use or is being used for the purposes intended.” In addition, the improvements in question must be capable of completion at that time. If there is an identified defect or correction to be made, the contract may still be deemed to have been substantially performed if the defect or correction can be completed for less than:
- Three percent of the first $1,000,000 of the contract price,
- Two percent of the next $1,000,000 of the contract price (if applicable), and
- One percent of the balance of the contract price (if applicable).
Obtaining a Certificate of Substantial Performance under Ontario’s Construction Act
If the contract has been substantially performed, the contractor may obtain a Certificate of Substantial Performance from the owner of the property or a “payment certifier” (if one has been identified).
Suppose the owner or the payment creditor does not sign the certificate of substantial performance promptly. In that case, a contractor may apply to the court for a declaration that the contract has been substantially performed. Obtaining a court declaration has the same effect as obtaining a certificate of substantial performance.
Once the contractor has obtained a certificate of substantial performance or a declaration from the court, they must still publish a copy of the certificate or declaration in a construction trade newsletter within seven days.
Completing a Certificate of Substantial Performance
Section 32 of the Construction Act guides the specific information that must be included in a certificate of substantial performance. Notably, the following information must be included:
- The date on which the contract was substantially performed
- The name and service address of the owner, contractor, and (if applicable) payment certifier
- A description of the work completed
- A legal description of the property, including property identifier numbers (PIDs) and addresses OR a description of the property (if a construction lien is not attached)
The requirements in the Construction Act are not to be taken lightly. See, for example, Vestacon Limited v. ARC Productions Ltd., 2018 ONSC 5366, where the court declared three certificates of substantial Performance invalid because they did not include the property PIDs.
Effect of the “Completion Date” for Construction Liens in Ontario
Whether the contract references a Certificate of Substantial Payment or not, the effective completion date of the project is a key deadline for contractors who intend to preserve a construction lien. First, as noted above, the completion date signals that the contractor has 60 days to file a construction lien. If a construction lien is not filed within that time frame, the contractor will lose their right to file one.
The completion date also signals the countdown to another deadline – the lien must “perfect” their construction lien within 90 days of the completion date. If the contractor fails to perfect their lien within 90 days of the completion date, the construction lien will expire.
Holdbacks and Construction Liens
Note that the expiry of a construction lien has implications for holdbacks. Property owners engaging contractors are required to “hold back” 10% of the amount owed to the contractor. Holdbacks function as security for a construction lien and are released when a construction lien has expired or is discharged from the title. From the contractor’s standpoint, it is important to remember when the holdback will be released.
What Contractors Should Know About Construction Liens
Construction liens are finicky, and to execute one properly, there are many deadlines and processes that contractors need to be aware of, many of which have not been covered in this blog post. Furthermore, missing a deadline or failing to follow the appropriate process can extinguish a contractor’s right to file or act on a construction lien. If you are dealing with a construction law dispute, obtaining legal advice as early as possible is critical to ensure your rights are preserved.
Contact Tierney Stauffer LLP in Ottawa, Arnprior, Cornwall, Kingston, and North Bay for Trusted Advice on Construction Liens
The skilled construction lawyers at Tierney Stauffer LLP provide practical solutions to construction disputes that protect our clients’ financial interests. We represent clients at all levels of the construction pyramid in all legal forums, including litigation and alternative dispute resolution. For advice on your construction project, including issues relating to liens and construction contracts, contact us online or at 1-888-799-8057.