Ottawa’s evolving cityscape reflects a robust construction sector vital to the city’s economy. From residential developments to complex infrastructure projects, construction activity is constant. However, this dynamic industry is often punctuated by disputes, particularly payment disputes.
The Construction Act and the mechanism of construction liens are central to navigating these disputes. This guide provides insights into construction lien disputes and the complexities of the Construction Act in Ottawa, offering valuable information for owners, contractors, subcontractors, and suppliers.
What is a Construction Lien?
A construction lien is a statutory right granted to individuals or entities who have provided services or materials to a construction project and have not received due payment. This lien acts as a charge against the property being improved, giving the lien claimant a direct interest in the property. This security empowers the claimant to initiate court proceedings to sell the property and recover the outstanding debt. The right to claim a lien is not limited to those with direct contracts with the owner. It extends to a broad spectrum of participants in the construction process:
- Contractors: These are parties with a direct contractual relationship with the property owner, and in some circumstances, they are responsible for overseeing the overall project and are called General Contractors
- Subcontractors: These parties contract with a contractor/general contractor to perform specific portions of the work, such as plumbing, electrical, or HVAC.
- Workers: This includes any person who provides physical labour for wages on the project(such as carpenters, electricians, and general labourers).
- Suppliers: These entities supply materials used in the construction process, such as lumber, concrete, and fixtures.
The Process of Securing a Lien: Preservation and Perfection
Securing a lien is a time-sensitive process involving two distinct stages: preservation and perfection.
Preservation
This initial step involves registering a claim for a lien against the title of the property on which the construction occurred. There are strict timelines for this, which cannot be extended. If not complied with, the lien right is lost. Generally, the lien must be registered within 60 days of the earlier of the date of last supply, completion of a contract, or the date of publication of a Certificate of Substantial Performance. The Act is very complicated in this regard and must be discussed with a lawyer to ensure your lien is timely. Registration “preserves” the line, and it is then served on relevant parties (e.g. the owner/lenders) to notify them of its existence and to ensure that payments are withheld for the value of the lien as required by the Act is crucial to identify the legal description of the property accurately and include all required information in the claim for lien.
Perfection
Following preservation, the lien must be perfected by commencing a court action to enforce it. This involves issuing a Statement of Claim in the Superior Court of Justice and registering a Certificate of Action within 90 days next following the last day the lien could have been preserved. The Statement of Claim initiates formal legal proceedings to establish the validity of the lien and seek a judgment for the outstanding amount. Failure to meet this deadline renders the preserved lien null and void.
Adhering to these strict deadlines is paramount. Missing the preservation or perfection deadline will extinguish the lien rights, leaving the claimant without this crucial security.
The Holdback and Prompt Payment
A cornerstone of the Construction Act is the holdback requirement. This legally mandates that the owner and every contractor/subcontractor to retain 10 per cent from every payment as a protective fund for potential lien claimants, ensuring that funds are available to satisfy valid lien claims. The holdback is typically released after the lien period has expired and no liens have been registered or after all registered liens have been satisfied or vacated.
The 2018 amendments introduced the concept of “prompt payment,” which sets strict timelines for payment by the owner, contractor(s) and subcontractor(s) on a project. The timelines are triggered by delivery of a “proper invoice,” which must contain specific information, including:
- The contractor’s name and address.
- The owner’s name and address.
- The date of the invoice.
- The contract number or other identification of the project.
- A description of the services or materials provided.
- The quantity of services or materials provided.
- The amount payable for the services or materials.
- The payment terms.
The Act sets strict timelines for owners/contractors/subcontractors to pay, which can only be avoided if the payor serves a formal notice within the time frame set out under the Act.
Common Causes of Construction Lien Disputes
Several factors frequently contribute to disputes that escalate into construction lien claims:
Payment Disagreements
Payment disagreements are the most prevalent cause of construction disputes. Disagreements often arise due to perceived deficiencies in the quality of work, disputes over the valuation of work completed, the paying party’s financial constraints, or simple administrative or clerical errors in invoicing or payment processing.
Change Orders
Construction projects are rarely static. Modifications to the original scope of work, commonly called change orders, are frequent. These changes can lead to disputes regarding the associated costs, the impact on project timelines, and whether the changes were properly authorized. Disputes are particularly common when changes are made verbally without proper written documentation.
Defective Work
Disputes concerning the quality of work performed can lead to payment withholding. Determining responsibility for defects, the scope of necessary repairs, and the associated costs can be complex and often requires expert assessment.
Project Delays
Delays can have significant financial ramifications for all parties involved. Disputes often center on determining the cause, whether the delay was excusable, and who bears the responsibility for the resulting costs.
Bonding and Insurance Issues
Failure to provide or maintain Labour and Material Payment Bonds and Performance bonds, which guarantee payment of trade project completion and insurance coverage, can also become points of contention. Disputes can arise regarding the scope of coverage, the validity of claims, and the responsibilities of the bonding company or insurer.
Non-Compliance with the Construction Act
The Construction Act outlines specific procedural requirements and strict timelines for preserving and perfecting liens. Failure to adhere to these requirements, even due to minor oversights, can invalidate a lien claim, leaving the claimant without legal recourse.
The Impact of the 2018 Amendments to the Construction Act
The 2018 amendments brought about significant changes to modernize the lien process and expedite payment in the construction industry. Key changes include:
Prompt Payment
As discussed above, this regime mandates specific payment timelines throughout the construction chain. Owners must pay contractors within 28 days of receiving a proper invoice. Contractors, in turn, must pay their subcontractors within 7 days of receiving payment from the owner. This system aims to improve cash flow and reduce payment delays.
Adjudication
This is a streamlined, fast-track dispute resolution process designed to resolve disputes quickly and efficiently. An impartial adjudicator is appointed to review the dispute and issue a binding decision within a short timeframe, typically 30 days. This provides a less expensive and time-consuming alternative to traditional litigation.
Proper Invoices
As discussed earlier, the amendments introduce specific requirements for proper invoices. These requirements ensure clarity and transparency in invoicing and trigger prompt payment timelines.
Holdback Modernization
The amendments modernized holdback rules, including provisions for the annual release of holdback in certain circumstances, allowing for a more timely release of funds to contractors and subcontractors. This addresses concerns about tying up capital for extended periods.
Resolving Construction Lien Disputes
Resolving construction lien disputes can be approached through several avenues:
Negotiation and Mediation
These are often the most efficient and cost-effective methods. Negotiation involves direct communication between the parties to reach a mutually agreeable settlement. Mediation involves a neutral third party facilitating communication and assisting the parties in resolving.
Adjudication
As previously discussed, adjudication provides a faster and less expensive alternative to litigation. The adjudicator’s decision is binding on the parties, although it can be appealed to the court on limited grounds, such as jurisdictional errors.
Litigation
Litigation in the Superior Court of Justice may become necessary if negotiation, mediation, or adjudication fails to resolve the dispute. This involves commencing a formal court action to enforce the lien, which can be lengthy and expensive.
Best Practices for Avoiding Construction Lien Disputes
Preventing disputes is always preferable to resolving them after they arise. Several best practices can significantly mitigate the risk of disputes:
Clear and Comprehensive Contracts
Well-drafted contracts clearly defining the scope of work, payment terms, dispute resolution mechanisms, and other key obligations are essential. Ambiguous or incomplete contracts are a frequent source of conflict.
Proper Documentation
Maintaining meticulous and contemporaneous records of all work performed, materials supplied, change orders, communications, and payments is crucial. This documentation serves as crucial evidence in case of a dispute.
Timely Submission of Invoices and Change Orders
Submitting invoices promptly and in accordance with the contractual terms helps to avoid payment delays and potential disagreements. Similarly, change orders should be agreed upon and recorded in writing, and contract notice provisions should be strictly complied with.
Effective Communication
Maintaining open, proactive, and professional communication between all parties involved in the project is vital. Regular communication helps identify and address potential issues early on, preventing them from escalating into full-blown disputes.
Understanding and Adhering to the Construction Act
Familiarizing oneself with the requirements of the Construction Act, including the strict timelines for preserving and perfecting liens, is paramount for all stakeholders.
Seeking Legal Counsel
Consulting with a construction lawyer early in the event of a dispute or even during the contract negotiation phase can help protect your rights and explore available options. Early legal advice can prevent disputes from escalating into costly litigation.
Ottawa Construction Lawyers Advising On Construction Law Matters
The Construction Act and the mechanism of construction liens are integral to the Ottawa construction landscape. A thorough understanding of this legislation is crucial for all participants. At Tierney Stauffer LLP, our construction lawyers possess in-depth knowledge and a proven track record of successfully handling various construction law issues. From contract drafting and negotiation to dispute resolution and litigation, we provide tailored solutions to meet clients’ unique needs at every stage of a project. Whether you’re a contractor, developer, owner, or subcontractor, we are committed to protecting your interests and ensuring your construction endeavours’ smooth and successful completion.
Contact us today at 1-888-799-8057 or online to schedule a consultation and discover how our experience can benefit your next project.
