Client Update: Mechanics’ Lien Act reform

The Legislative Services Branch of the Province of New Brunswick has announced in issue 40 of the Law Reform Note, available online, its intention to reform the Mechanics’ Lien Act. The Note draws on similar legislative amendments that have been undertaken by other provinces, including most recently Ontario’s overhaul of its Construction Lien Act, which passed through the Legislative Assembly of Ontario late last year but will come into force on a date yet to be named.

Major changes to core elements of the Act are not planned; however, there are some significant proposed changes that are similar in scope to those implemented in Ontario and elsewhere. The Note primarily focuses on modernizing the Act to reflect changes in similar legislation across the country. A second note is expected to be released later this year which will deal with proposed amendments pertaining to prompt payment and dispute resolution.

Modernization of the Act

Modernization of the Act involves a number of amendments relating to liens, holdbacks, trusts, and surety bonding. The following changes are being considered:

  • Amending the definition of “improvement” to include “fixtures”.
  • Amending the definition of “owner” to reflect the commercial realities of the public-private-partnership model, where the owner may not clearly fall within the current definition.
  • The Act currently provides that the time within which a lien may be preserved is different for some parties (i.e. suppliers, equipment rentals or contractors). It has been recommended that the period be 60 days for all lien holders.
  • Adding “termination” as a triggering event for the time within which a lien holder must preserve its claim for lien.
  • Amending the rules and requirements for vacating claims for lien.
  • Prescribing how lien claims are to be filed against subdivisions, condominiums, and leaseholders.
  • Adding a requirement for suppliers to construction sites to provide actual notice to the owner of an intent to assert a lien. It is unclear whether this requirement would be limited to residential construction or would extend to all construction projects.
  • Reducing the statutory holdback from 15% to 10%, which is in line with the holdback provisions of almost all other provincial lien legislation.
  • Amendments to more clearly define the terms completion and substantial completion for the purposes of the time limits imposed by the Act. This reflects changes most recently made to Nova Scotia’s lien legislation.
  • Adding new provisions dealing with release of holdback mechanisms including early, phased, and segmented release of holdback. It is also suggested that the release of holdback be made mandatory rather than permissive, as is now the case.
  • Strengthening the trust provisions, including extending the provisions to include owners’ and vendors’ trusts.
  • Two options are discussed for protection of trust funds, particularly in the event of insolvency: (1) segregating holdback funds; or (2) enhanced record-keeping requirements. A third option, project bank accounts, is mentioned but not discussed at length. It is acknowledged that any of the options would create a more significant administrative burden on payors.
  • Expanding the right to information under section 32 of the Act.
  • Contracting parties may be permitted to opt out of the holdback and lien scheme where labour and material payment bonds are in place. If this is adopted, New Brunswick would be the first Canadian jurisdiction to have such a scheme in place.
  • Further penalties or an enforcement mechanism might be added to the Act to discourage non-compliance.

Prompt payment and dispute resolution

Prompt payment and changes to dispute resolution under the Act are briefly touched on in the Note; however, a second note from the Legislative Services Branch will set out more detail on these topics later this year.

Prompt payment legislation is in place in several other common law countries and is likely to be introduced in other jurisdictions in Canada now that Ontario has set out the prototype. Importantly, the Federal government is likely to introduce its own form of prompt payment legislation respecting construction contracts.

Ontario’s legislation includes some technical changes to its dispute resolution provisions, the most significant of which is the introduction of an adjudication model described as “pay now, argue later”. Adjudicators are nominated through a central Authorized Nominating Authority, which is responsible for development and overseeing training programs for adjudicators. Parties to a dispute would be empowered to refer it to adjudication respecting any of the following matters:

  1. The valuation of services or materials provided under the contract.
  2. Payment under the contract, including in respect of a change order, whether approved or not, or a proposed change order.
  3. Disputes that are the subject of a notice of non-payment.
  4. Amounts retained as set-offs.
  5. Payment of a holdback.
  6. Non-payment of holdback.
  7. Any other matter that the parties to the adjudication agree to.

The goal of adjudication is to fast-track disputes with interim decisions from an adjudicator within 39-60 days with a view to keeping a project moving. Parties are free to re-visit disputes at the conclusion of the project.

Draft amending legislation is not expected for some time. However, owners, contractors, subcontractors, suppliers, design professionals and others in the construction industry should keep abreast of this initiative and consider how the possible amendments could affect their commercial relationships going forward. Stakeholders have been invited to submit their comments on the Note to the Legislative Services Branch by February 15, 2018. The Legislative Services Branch contact information is:

Legislative Services Branch, Office of the Attorney General
Chancery Place, P.O. Box 6000, Fredericton, N.B., Canada E3B 5H1
Tel: 506.453.2855, Email: lawreform-reformedudroit@gnb.ca

This update is intended for general information only. If you have questions about how the information above may affect you, please contact any member of our construction group.

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