Province Suspends Limitation Periods – Consequences for Construction Liens

Published on: March 2020 | What's Trending

Pile of gold coins with construction toys climbing on the coins

An order was made on March 20, 2020 under the Emergency Management and Civil Protection Act (the “Order”) which may provide some relief to those civil litigants running up against limitation periods and other procedural time limits. However, the Order may have unintended consequences for the construction industry.

The Order suspends the operation of,

  • Any provision establishing a limitation period; and
  • Any provision establishing a period of time within which any step must be taken in a proceeding, or intended proceeding.

The suspension invoked by the Order is retroactive to March 16, 2020 and lasts for the duration of the emergency that was declared by the province.

As those in the construction industry know, Ontario’s Construction Act mandates strict timelines for when a construction lien must be ‘preserved’, (i.e. registered on title to the subject property, or delivered, as the case may be) and ‘perfected’, (i.e. issuing a Statement of Claim, and registering a Certificate of Action if applicable). A construction lien expires if it is not preserved or perfected in time.

The first part of the Order suspends any limitation period. A simple definition of a limitation period is a period of time within which an aggrieved person can commence a law suit against another, failing which the person will be barred from so doing. Using this definition, the time limit for preserving a lien in order to prevent it from expiring may not fit squarely within the definition of a limitation period. Even if the lien expires, the claimant is still able to commence an ordinary action to collect the debt.

After a lien is preserved, it will nonetheless expire if an action is not commenced. Therefore, it could be argued that the prescribed time within which a lien action must be commenced is a ‘limitation period’ and therefore, falls within the ambit of the first part of the Order.

The second part of the Order suspends periods of time within which any step must be taken in any proceeding, including any intended proceeding. A construction lien is preserved before a proceeding is commenced. Then, an action is started in order to perfect the lien. These steps come before the commencement of a proceeding and, therefore, they are not necessarily steps in a proceeding. Whether the preservation and/or perfection of a construction lien are steps in an intended proceeding is left open for interpretation.

In addition, any suspension of time periods pursuant to the second part of the Order is subject to the discretion of the Court responsible for the proceeding. Therefore, even if preservation and/or perfection of a construction lien are considered ‘steps in an intended proceeding’, a Court may decide that the suspension contemplated by the Order does not apply in the circumstances before it.

Whether and to what extent the Order applies to Construction liens is not entirely clear. If the preservation and perfection deadlines for liens mandated by the Construction Act are found to have been successfully suspended by the Order, there may be consequences which were likely not intended. This is especially true because the flow of construction funds often hinges upon a determination that lien rights have expired.

For example, an owner is required to make payment of the statutory holdback when all liens that may be claimed against that holdback have expired, been satisfied, discharged or otherwise dealt with. Since all lien rights expire 60 days from publication of a certificate of substantial performance, can an owner still safely use the date of publication as the basis for releasing the holdback in the face of this Order? Must the owner now add the period of suspension created by this Order in order to determine when lien rights expire? Especially in these precarious economic times, it could not have been the intention of the province to stop or seriously delay payment in the construction industry.

Similarly, not being able to determine with certainty that lien rights have expired may delay the distribution of any ‘pot’ of money which has been identified as being available to validly preserved and perfected liens.

Whether the Order suspending limitation periods and other time limits applies in any meaningful way to the preservation and perfection steps required to be taken in order to prevent a lien from expiring is far from clear. Therefore, it is strongly recommended that liens be preserved and perfected in accordance with the requirements of the Construction Act.  Notwithstanding the fall out of the Covid-19 pandemic, preserving and perfecting liens is still completely doable.  Unfortunately, the uncertainty created by the Order may have unintended consequences if it is used to delay payment, where the release of funds depends upon a determination that lien rights have expired.