Understanding Construction Liens During the COVID-19 Pandemic

The COVID-19 health pandemic has had a significant impact on all industries. However, there are a number of changes that are unique to the construction industry. On March 16, 2020, the Ontario government declared that all limitation periods for proceedings would be suspended. On April 16, 2020, the government lifted the suspension of limitation periods for matters brought under the Construction Act due to the concern that many contractors and construction companies would not be paid for their work completed prior to or during the COVID-19 pandemic. This may have also been a result of many construction projects continuing after the state of emergency was announced. This is a welcomed update for many contractors whose businesses have been declared essential and will have to continue operations during the pandemic.

Contractors Should Keep Construction Liens in Mind

As a result of lifting the suspension on construction limitation periods, contractors and subcontractors will want to ensure that they preserve and perfect their claims pursuant to the timelines described in the Construction Act or risk the chance of losing their ability to use the lien as an enforcement mechanism for payment.

As a result of the timelines under the Construction Act being suspended between March 16, 2020 and April 16, 2020, construction industry participants will have to determine the appropriate timeline to preserve and perfect their lien rights. As a result of the suspension, if your lien period began between March 16, 2020 and April 16, 2020, your time period to register a lien will begin on April 16, 2020. If the limitation period started before March 16, 2020, you will have to calculate the deadline to preserve a lien once the period recommences on April 16, 2020. The deadline to preserve a lien in this latter scenario will be the number of days remaining in the lien period as of March 16, 2020.

Property Owners Can Payout Holdbacks

The lifting of the limitation period also results in property owners being able to safely payout holdbacks. The Construction Act requires all payers (which in addition to property owners, includes contractors and subcontractors) to holdback 10% of any payment until all applicable lien periods have expired. Practically, this meant that while the time period to register a lien was suspended, so was the time period for not paying out a holdback. Now that timelines are reinstated and lien periods can expire, payers may begin distributing holdbacks pursuant to the lien periods that apply to them. Property owners will have to calculate timelines in order to determine when they will be able to pay out holdbacks. Contractors will now be able to receive the full value for their work without the uncertainty posed by indefinite wait periods, which was the case prior to the government lifting the suspension on Construction Act limitation periods.

These are welcomed changes for contractors and subcontractors who are continuing to work during the pandemic. These changes ensure that once the lien period is over, contractors can receive the full amount they are entitled to, creating significant financial relief.

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