The Construction Act is about to undergo a whole new set of changes that will affect every stakeholder across Ontario in the industry. While many of our colleagues are submitting excellent articles on the particulars of these changes and how they affect the industry broadly, we have decided to narrow in and put down our thoughts on how these changes will specifically affect homeowners and the residential construction sub-industry.
Important Changes for Homeowners and Residential (Sub)Contractors
On November 6, 2024, Bill 216, Building Ontario for You Act received Royal Assent.[1]In Schedule 4 of the Bill, the Ontario legislature enacted several changes to the Construction Act dealing with holdback and lien provisions, invoicing, and prompt payment, as well as interim adjudication. While this Bill has received Royal Assent, the changes have not yet come into force.[2]
Without going into great detail on all of the changes to the Act, the most important takeaways for the residential construction industry are as follows:
Price:
At present, Section 1(1) of the Construction Act defines “price” as:
(a) the contract or subcontract price, (i) agreed on between the parties, or (ii) if no specific price has been agreed on between them, the actual market value of the services or materials that have been supplied to the improvement under the contract or subcontract, and
(b) any direct costs incurred as a result of an extension of the duration of the supply of services or materials to the improvement for which the contractor or subcontractor, as the case may be, is not responsible.
Under the recent changes, the definition of “price” is amended to allow subsequent regulations to specify a price for a contract or subcontract other than actual market value of supplied services or materials, where parties do not agree on said price.
This change becomes tricky in the residential construction sphere as it does not consider the interplay with the Consumer Protection Act, 2002, and more specifically Section 24(5) of O. Reg. 17/05: General which requires that each future performance agreement (such as a construction contract) have a list of the prices at which the goods and services are to be supplied to consumers, including taxes and shipping charges.[3]
Ultimately, if parties do not include an explicit price and aim to rely on the new regulations setting specific prices pursuant to the changes to the Construction Act, they may find themselves in legal proceedings disputing the conflict of laws. An easy solution is to ensure that the price is always clear at the outset of entering into any agreements.
Proper Invoice:
Although homeowners and residential contractors do not always realize this, residential construction is subject to prompt payment, which subsequently requires the delivery of a proper invoice[4] in order to trigger the prompt payment process. As it currently stands, an Owner does not have the obligations triggered if the proper invoice does not qualify under the requirements of a proper invoice – i.e., if it is not proper.
Under the new amendments, an invoice that may not be “proper” in its requirements will still be deemed to be a proper invoice unless the owner notifies the contractor in writing of the deficiency and of what is required to address it, within the specified time. For homeowners, this means that failure to immediately raise concerns with invoices will trigger a mandatory payment obligation within twenty-eight (28) days. That being said, for residential contractors, it requires ensuring that invoices are sent to begin with.
Holdback:
Even – and especially – in residential projects, homeowners have a mandatory obligation to retain ten percent (10%) of all payments made to the contractor until the expiry of all liens. It is not a secret that most homeowners do not retain this holdback to begin with, whether due to lack of knowledge or cost considerations/side-deals made with contractors in contravention of the Construction Act.
Pursuant to the new amendments, the provisions dealing with the payment and release of holdback were revised to require an annual payment of the holdback in accordance with rules and restrictions specified by that section[5]. The most important change in this provision will be a requirement that mandates the publication of the annual distribution of holdback. Namely, homeowners will have to publish every year (if applicable) that there has been a year of collecting holdback on that project and that they intend to release the holdback collected in that year. This is a serious and significant onus for homeowners to consider, which already presupposes the sophistication of your average consumer.
For residential contractors – and especially subcontractors, there is a new requirement to ensure that lien rights are monitored to avoid any expiry and loss of protection and security.
Takeaways and Practice Tips for Members of Residential Construction Industry
Whether you are a homeowner or a contractor working on a residential property, the legislature is sending a clear message that documentation and proper paperwork is necessary. In tandem with the Consumer Protection Act, 2002, all parties should be weary of the recent changes to the definition of price.
While holdback retention is not standard or customary (in spite of the law), all members must ensure that proper documentation for holdback retention and release is held. Subcontractors and materials suppliers should consider including clauses in their respective subcontracts that clearly indicate when the anniversary date falls for the purposes of annual holdback release. Subcontractors should also get into the habit of tracking publications to avoid expiry of their lien rights.
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at dan@fridmar.com.
[1] https://www.ola.org/en/legislative-business/bills/parliament-43/session-1/bill-216
[2] This will probably take place sometime in early 2025.
[3] https://www.ontario.ca/laws/regulation/050017#BK32
[4] Defined in Section 6.1 of the Construction Act.
[5] We do not have this information yet.
