In Fall 2024, Ontario announced upcoming amendments to the Construction Act, following a five-year review of the broad changes implemented during 2018 and 2019. 

Perhaps the most significant upcoming change is the decision to impose mandatory expiry of liens and release of holdback on an annual basis: each year, all contractors and subcontractors in Ontario will be entitled to payment of their holdback without deduction.

Amended Holdback Release

Once the Construction Act amendments come into effect, the 10% basic holdback must be released on an annual basis, using the anniversary of the date of the prime contract. Within 14 days of the anniversary, the owner must publish notice that the annual holdback is being released, specifying the amount to be paid and the payment date.

Holdback funds must then be released, without deduction, by the owner within 14 days of the expiry of the lien period. The only exception is if a lien is preserved with respect to the project.

This means that owners will no longer be able to withhold or deduct amounts for deficiencies or other set-off claims from the 10% holdback. To address this, we may see owners begin to incorporate additional contractual holdbacks above and beyond the 10% basic holdback.

It also means that even in the face of a written notice from a subcontractor that it has not been paid, if the subcontractor has not properly preserved a lien, the owner may still be required to release the entirety of the annual 10% holdback.

The annual release of holdback will be a welcome change for contractors and subcontractors, particularly for those who are involved in the early stages of a project, or those working on lengthy projects who have previously had to wait years for their holdback. This change should also reduce parties’ liability for the holdback and breach of trust claims.

Amended Lien Rights

In line with the timing of holdback release, a contractor will generally have 60 days from the anniversary date to preserve a lien for all services provided in the previous year. A subcontractor will generally have 60 days from the date of last supply or the anniversary date (whichever is earlier) to preserve its annual lien. If you do not preserve an annual lien, your lien rights will expire for all work performed in that one-year period leading up to the anniversary date.

For each party whose work is continuing, you will have a renewed right to lien for all work performed in the following year.

This change will likely result in additional liens on a project, particularly in relation to extension of time costs or other early or ongoing claims. Instead of being able to wait until the end of a project to see if a claim can be resolved, contractors and subcontractors will be forced to decide on an annual basis whether to lien or lose the right to do so.

Timing and Transition of Changes

These amendments will come into effect on a date to be declared by the Government. Prior to the amendments taking effect, the Government will need to release additional information in the form of revised regulations associated with the Construction Act. 

Once declared by the Government, these provisions will take immediate effect for any new construction projects. However, there is a grandfathering transition period for the annual lien expiry and holdback release. This means that these specific changes will not come into effect until after the second anniversary of the prime contract date following the date the amendments come into effect.

Owners, contractors, and subcontractors should be reviewing their internal processes now to ensure that they are ready to track the anniversary date for each project and are prepared to release and receive holdback funds once annual holdback releases begin.