Specific Legal Issues
(Please don't) Lien on Me
From the CCI North Alberta Summer 2021 Insite to Condos Vol. 36, Issue 4
Changes are coming that require contractors to be paid within 28 days (conditions apply).
The hills are alive with the sound of changes to payment requirements and lien rights in the construction industry. The connection between the condominium industry and the construction industry is strong and ever-present, though sometimes forgotten. Condo corporations have an ongoing duty for the repair and maintenance of the common property. Beyond these routine needs are the larger capital replacement projects that take place, which are all performed by companies from the construction industry. How do these changes affect condominiums, you may ask? Read on to find out!
If a contractor or subcontractor performs labour or supplies materials for these projects but does not get paid, they can register a builder’s lien. When registered, a builder’s lien shows on the certificate of title to the property worked on and creates an interest in the property for the lien holder until they are paid.
Amendments to the Builders’ Lien Act
Bill 37 (the Builders’ Lien (Prompt Payment) Amendment Act, 2020), was introduced to amend the Builders’ Lien Act. Proclamation is expected to take place in Fall 2021, at which time the piece of legislation will be changed to the Prompt Payment and Construction Lien Act. The changes contained in Bill 37 are quite extensive and create a much more structured process related to payment for construction labour or materials.
Wait! Don’t turn the page yet. Before your eyes completely glaze over, it is important to note that the new payment process is without a doubt going to have a significant impact on the current practices within the condominium industry. These changes apply to any party receiving labour or materials, including condominium corporations, and legally must be followed. Below is a snapshot of some of the major changes to the legislation.
• Property owners (i.e. condominium corporations) must pay the contractor within 28 days of receiving a “proper invoice”;
• Contractors and subcontractors have to pay their subcontractors within 7 days of receiving payment from the property owner;
• If a property owner does not agree with an invoice, they must issue a “Notice of Dispute” within 14 days of receiving the disputed invoice;
• Contractors and subcontractors will have 60 days to register a lien (currently they have 45 days), except for contractors doing concrete work, who will have 90 days to register a lien;
• The minimum requirement to register a lien (the amount owed to the contractor or subcontractor), is increased from $300 to $700;
• New rules for the payment of holdbacks on large, multiyear projects will be introduced; and
A new adjudication process will be implemented to resolve disputes without use of the Courts.
What Is A “Proper Invoice”?
One of the most significant changes to the legislation is the definition of what is considered a proper and payable invoice. For an amount invoiced to be considered due and owing, the invoice must contain the following:
i. The contractor’s name and business address;
ii. The date of the proper invoice and the period during which work was done or materials were provided;
iii. Information identifying the authority (such as the contract) under which the work was performed, or materials provided;
iv. A description of the work performed, or materials provided;
v. The amount requested for payment and the payment terms;
vi. The name, title and contact information of the person to whom payment is to be sent;
vii. A statement indicating that the invoice is intended to be a “proper invoice”; and
viii. Any other information prescribed by the regulations.
Note On Lien Holdbacks
Before wrapping things up, let’s take a moment to review builder’s lien holdbacks. Lien holdbacks are required under the current Builders’ Lien Act and will remain a legal requirement under the new legislation. A portion of the value of work performed or materials received (often a percentage of the amount invoiced), is held back by the property owner until the time that contractors and subcontractors are given to register a lien has expired. This obligation is frequently overlooked and unfulfilled in the condo industry, to the detriment of the condominium corporation and owners. Holdbacks are required to be done on any construction project in Alberta, no matter how big or small. Failure to comply with holdback requirements expose the condominium corporation to legal liability on a variety of issues.
Impact On Condo Practices
The change that will arguably have the greatest impact on current practices in the condo industry is the time frame for payment. Currently, it is not uncommon for payment of invoices by condo corporations to be on a delayed payment cycle of up to 3 months or more. This can be due to the frequency within which the Board of Directors meet, when invoices are received, how long it takes for cheques to be signed, processed, and sent out, among other things. Given the 28-day deadline for payment that is specified in the new legislation, the industry is going to need to tighten and streamline its practices surrounding payment of invoices. A suggestion to assist in expediting payments is to set up the condominium corporation to pay invoices electronically, if possible.
Another area that may require reworking of processes and procedures is how invoices are received and reviewed. Corporations will need to be diligent in reviewing invoices for payment to confirm that all the requirements mandated by the legislation are met. If they are not met, or there is a dispute over the work or the invoice, a process should be implemented to ensure that the deadline for serving the “Notice of Dispute” is done within the 14-day period. Note that serving a “Notice of Dispute” does not mean the property owner is not obligated to pay for actual labour or materials received.
Dealing with construction projects can be tricky. The possibility of builders’ liens adds more pressure and yet another complicated layer. The condo industry will need to adjust its practices to fit within this framework and comply with all legal requirements. Adapting existing processes and procedures or establishing new ones will be the key to successfully navigating the complicated world where the two industries intersect. Also, never hesitate to consult the corporation’s legal counsel for guidance and assistance.
Are you interested in attending an education session to learn more about how your corporation can prepare for these changes? Email us at email@example.com and let us know!
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