Maintenance and Repairs

May 5, 2022 Published by Toronto and Area Chapter - By Gerald R. (Jerry) Genge

A Director's Dozen

From the Spring 2022 issue of CCI Toronto Condovoice Magazine, Volume 26, Issue Number 3

12 Things Directors Need to Know About Paying for Building Repair

In 2018, there were major changes to the old Ontario Construction Lien Act (now the Construction Act) that significantly affect how and when owners pay for building repairs. These changes were incorporated over time and are now all in effect. More specifically for this article, the changes give rights to adjudicate for non-payment.

Here are 12 things that you should know about paying for building repairs.

1 Building repairs that are not normal "maintenance", like servicing equipment or landscaping, are included in the provisions of the Act. Most importantly, nobody can contract out of the payment provisions in the new Act.

2 The prompt payment provisions in the new Act are triggered by a "proper invoice". To qualify as a proper invoice, it can have previously mandated enclosures, like WSIB verification and certain declarations, but it can not require certification by a third party – such as your engineer.

3 Once you get a "proper invoice" you have 28 days to pay undisputed amounts. Disputed amounts can be withheld but proper notice of disputed amounts must be given within 14 days of receiving the proper invoice specifying which amounts are in dispute and why. Undisputed amounts must still be paid by 28 days. The general contractors are required to pay subcontractors by 7 days afterward and they the sub-subcontractors within another 7 days. The objective is to move the funds from the payor to the hands of the people that did the work.

4 The "proper invoice" goes to the owner – not the payment certifier/engineer. If there is a payment certifier/engineer, the owner may pass it along to the engineer to review/certify; but any delays in certification, do not suspend the payment clock. In this regard, it makes sense for the contractor to submit a draft invoice to the payment certifier/engineer for review, adjustment, and agreement before the contractor submits a "proper invoice" to the owner/payor. Just to be clear, payment is required in 28 days. That is not when the treasurer returns from vacation, not when the management company chooses to do cheque runs, and not when the Board schedules its next meeting.

5 These provisions have been in place for all contracts after October 2020. However, the transition from the old payment regime to the new one may not necessarily be triggered even if the contract was signed after October 1, 2020. If, for example, you put out a call for bids in March 2020 but did not sign a Contract until after October 1, 2020, it may be that the old Construction Lien Act applies along with its lien provisions and without payment adjudication requirements. By now, most of this type of exclusion has passed.

6 If owners don't comply with the payment provisions of the new Act, a contractor can require payment adjudication. Adjudicators (read "inquisitors") can be chosen by agreement of the disputants, but only from persons that have been qualified by the nominating authority, i.e., only persons approved by the Ontario Dispute Adjudication for Construction Contracts (ODACC) can hear payment disputes under the new Construction Act provisions. There are about 65 of us now. The contractor can also lien the property as always.

7 Adjudication fees are usually fixed and range from $800 to $3,000 for claims up to $99,999. If the claim is more than that or is more complex, hourly rates apply. Different adjudicators have different hourly rates. Adjudicators make determinations on the supplied evidence. They can decide payment amounts, interest, and even who pays the adjudication costs if the adjudicator decides the payment denial or the payment claim was frivolous, vexatious, or an abuse of process.

8 The adjudicator's determination is a "binding interim determination". In other words, either the contractor or the payor can appeal an adjudicator's determination with "leave" of the court - meaning that you had better have a good reason to appeal the decision other than that you don't agree with the finding.

9 Adjudicators have the authority to order the production of any document or disclosure of any evidence concerning the claim. They can make site visits, compel oral testimony, and make reasonable assumptions to make a determination on payment. Why do they have this degree of latitude? It's pretty sensible. An adjudicator has about a month from the date of appointment to collect evidence, establish an agreed adjudication process, weigh the merits of the claim and denial, perform necessary adjustments if warranted, and write a determination.

10 Several issues may complicate how the payment provisions are interpreted by an Adjudicator. For example, evidence may support any unapproved Change Orders, Change Directives, and Site Instructions. Those may affect payable amounts. The impact of deficient work and disputes about deficiencies; how and if the signed contract complies with the Construction Act; and whether the invoicing conforms to any pre-arranged payment schedule will also affect payment amounts.

11 If payment is ordered but not paid, a contractor can take an ODACC-certified determination to the court for enforcement. Once the adjudicator's determination is an order of the court, Ontario's Rules of Civil Procedure apply. Specifically, payment or recovery of money can be enforced by:

• Writ of Seizure and Sale,
• Garnishment,
• Writ of Sequestration, and/or
• Writ of Possession

12 In addition, to comply with the lien provisions of the Act, the 10 percent statutory lien holdback funds must be held in a trust account and be traceable with detailed records on all money in and out of the trust account. The contractor can ask for those records. It can not be an account shared by operating expenses or other payments.

In the past two years, I have had several revealing conversations with major management firms and repair contractors. To maintain the status quo and please owner– clients, some Management firms are looking for ways to create a "work-around" for the payment requirements. Legally, they can not. As explicitly stated in the new Act, any provision in a contract that attempts to change the requirements of the Act is void and unenforceable. Owners will just have to adjust processes to deal with the payment and trust fund requirements of the new Act.

Contractors, on the other hand, are concerned that if they complain about slow payment from a client that is accustomed to paying in 75 to 120 days, for example, they will lose the business of that client, become "blackballed" by managers or engineers as troublesome, and as a result, their revenue stream will suffer. That fear is founded on possibly illegal actions of the payor or their agent. I would anticipate that there would be serious ramifications by a court against any payor or agent that is found to cause a contractor to suffer business losses when the contractor was only attempting to get paid.

These payment changes will make the process of payment and claims for payments far more interesting as this unfolds. Most certainly, many will have to up their game and start paying attention to the law around building repairs.