Ontario Construction Lien Law: A Practical Guide to the Construction Act

The Construction Act: A Major 2017 Overhaul

Ontario's construction lien regime was fundamentally modernized by Bill 142 (Construction Lien Amendment Act, 2017), which amended and renamed the former Construction Lien Act as the Construction Act, RSO 1990, c C.30. The changes, which came into force in stages between 2018 and 2019 (prompt payment and adjudication applying to contracts entered into on or after October 1, 2019), introduced two significant new regimes alongside the existing lien framework:

• Prompt payment — mandatory payment timelines running down the construction pyramid;
• Adjudication — a fast-track dispute resolution mechanism for payment disputes during an ongoing project.

For Ontario construction lawyers, mastery of both the traditional lien regime and the new prompt payment and adjudication framework is now essential.

Who Has Lien Rights?

Section 14 of the Construction Act grants lien rights to any person who has supplied services or materials to an improvement. This includes contractors, subcontractors, suppliers of materials, equipment lessors, and workers. Professionals (engineers, architects) who supply services for an improvement also have lien rights.

Lien rights attach to the owner's interest in the premises on which the improvement is being made. Where the owner does not own the land (e.g., leasehold improvements), the lien attaches to the leasehold interest.

Crown contracts: The lien regime applies differently to contracts with the Crown (provincial government). The Crown's interest in land cannot be the subject of a lien, but holdback obligations and the prompt payment regime apply to Crown construction contracts under Part IV of the Act.

Holdback Obligations

Section 22 of the Construction Act requires every owner to retain a holdback of 10% of the price of services or materials supplied. The holdback is not discretionary — it is a statutory trust obligation. Owners who release holdback prematurely are personally liable to lien claimants up to the amount improperly released.

Key holdback rules:

• Basic holdback (s. 22): 10% of each payment to the contractor. Must be retained until the lien period expires (60 days after substantial performance or last supply, whichever is later) without lien registration.
• Finishing holdback (s. 23): Once basic holdback is released, an additional holdback on finishing work must be retained for a further 45 days after the certificate of substantial performance.
• Substantial performance (s. 2): The contract is substantially performed when the improvement is ready for its intended use or the remaining work constitutes not more than 3% of the first $500,000, 2% of the next $500,000, and 1% of the balance.

Critical Deadlines Reference

Lien Preservation and Perfection

Failure to preserve and perfect a lien within the statutory time periods results in the lien expiring. These deadlines are strict — courts have very limited jurisdiction to extend them.

Preservation (s. 31): A lien must be preserved by registering a claim for lien on title to the premises within 60 days after the lien claimant last supplied services or materials to the improvement. For a general contractor, the period is 60 days after the date of last supply or after the date of substantial performance, whichever is earlier.

Perfection (s. 36): A preserved lien expires 90 days after the date of preservation unless the lien is perfected. Perfection requires both: (1) commencement of an action to enforce the lien; and (2) registration of a certificate of action on title.

Practical note: construction lien actions are commenced in the Superior Court of Justice. Ontario Regulation 302/18 governs the forms. The action naming all lien claimants must be commenced within the 90-day perfection window — missing this deadline extinguishes the lien entirely.

Prompt Payment

The prompt payment regime (ss. 6.1–6.9, in force October 1, 2019) requires payment to flow down the construction pyramid on strict timelines:

• Owner to contractor: 28 days after receipt of a proper invoice. If the owner disputes the invoice, a notice of non-payment must be served within 14 days of the invoice due date specifying the amount in dispute and the reasons.
• Contractor to subcontractor: 7 days after the owner pays the contractor. If the contractor has not received payment from the owner on the disputed portion, the contractor must pay the undisputed amount and serve a notice of non-payment within 7 days of receiving the owner's notice.
• Interest: Unpaid amounts bear interest at the prejudgment interest rate prescribed by the Courts of Justice Act.

A "proper invoice" under s. 6.1 must contain specific information including the contractor's name, address, invoice date, contract number, period of work, and description of services. Courts and adjudicators have held that a technically deficient invoice does not start the prompt payment clock — advise owner clients to issue a deficiency notice promptly rather than simply withholding payment.

Adjudication

Ontario's construction adjudication regime (Part II.1, ss. 13.1–13.23, in force October 1, 2019) allows a party to refer a "matter in dispute" to a licensed adjudicator during an ongoing contract.

What can be adjudicated (s. 13.5):

• Valuation of services or materials;
• Payment under a contract, including prompt payment disputes;
• Disputes about amounts retained as holdback;
• Non-payment of holdback;
• Any other matter the parties agree to adjudicate.

Process: A party delivers a notice of adjudication; the other party has 4 days to participate or the adjudicator proceeds on default. The adjudicator must render a decision within 30 days of the referral (extendable by consent). Adjudication decisions are binding and immediately enforceable pending final resolution of the underlying dispute.

Adjudicators are licensed by Ontario's authorized nominating authority (currently the Ontario Dispute Adjudication for Construction Contracts, ODACC). A party may challenge an adjudicator's decision in the Superior Court only on very limited grounds (fraud, breach of natural justice).

Practical Tips for Ontario Construction Lawyers

• Preservation deadlines are absolute — calendar 60 days from every last-supply date on every construction file immediately upon retainer.
• For subcontractors, the last supply date may differ from the general contractor's — get delivery records and site attendance logs on intake.
• Prompt payment and adjudication apply only to contracts entered into on or after October 1, 2019. Always confirm the contract date before advising on which regime applies.
• A notice of non-payment under the prompt payment regime is a prerequisite to triggering adjudication — missing this step can defeat a payment claim.
• Holdback claims survive a contractor's bankruptcy in certain circumstances — advise subcontractor clients to register liens quickly when a general contractor becomes financially distressed.