Among the several watershed amendments to the Construction Act, such as the prompt payment provisions, longer lien timelines and the establishment of a new adjudication process (for more information visit the Ontario Dispute Adjudication for Construction Contracts), there is one subtle change that necessitates mentioning, that is the definition of improvement in the Act.
Under the Act, a person who has supplied services or materials to improve the property can register a lien on title to the property. Now, there is a 90-day time limit to register a construction lien. The time begins to run from the last day the contractor supplied services or materials to an improvement in respect of the land. The new Act defines “improvement” as “any alteration, addition or capital repair to the land.” The former version of the Act defined improvement without the word capital.
We can find some insight into the meaning of "capital repair" in the expert review report prepared for the Ontario government in 2016, which made recommendations that eventually encouraged and formed the basis for the amendments. The report defines “capital” with reference to the Income Tax Act. Capital repairs must improve the land in a way that extends the normal economic life, or improve the value or productivity, of the land or the building, structures or works on the land. Work done in order to maintain the land such as prevent normal deterioration or maintain in a normal, functional state is excluded.
This distinction also affects owners and other payors in the construction pyramid. A mere maintenance contract does not attach a right to retain the legislative holdback.
Therefore, to ensure your right to a lien does not expire or whether you need to retain the 10% holdback, review your contract carefully to confirm that the last day when the services or materials were provided was for work done to improve the land and not maintain it. There is no case law on this issue at this time to offer a bright line test with respect to the distinction between improvement and maintenance. The outcome on each case will hinge on the particular facts.
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