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Construction Lien Periods During the COVID-19 Pandemic

Construction Lien Periods During the COVID-19 Pandemic
April 14, 2020

In response to the COVID-19 crisis, governments across Canada have issued regulations suspending the operation of limitation and other time periods governing civil actions. The regulations do not typically list what is specifically covered, leading to some confusion about which time periods are included and which are not.

One sector that has been particularly affected by this situation is the construction industry where the application of the regulations to the time periods within which a claimant must register a lien has resulted in much debate. This past week, some governments have taken action to resolve the debate. This bulletin reviews the situation as of April 13, 2020, in Quebec, Ontario, Alberta and British Columbia.

Quebec

On March 13, 2020, Quebec issued Order in Council 177-2020 (Quebec Emergency Order), declaring a public health emergency in the province pursuant to article 118 of the Public Health Act. The Quebec Emergency Order has been renewed as needed and is expected to be further extended. On March 15, 2020, in the wake of the Quebec Emergency Order, the Quebec Minister of Justice and the Chief Justice of Quebec issued a joint ministerial decree, under the authority of article 27 of the Code of Civil Procedure, suspending all prescription (limitation) periods, forfeiture periods and procedural periods in civil matters until the state of emergency is lifted.

In principle, construction hypothec periods are forfeiture periods and would, therefore, be suspended under this joint ministerial decree. That said, potential construction claimants (contractors, subcontractors, suppliers of materials, architects, engineers and workmen who have taken part in construction or renovation work on immovable property in Quebec) would be well advised to act as if construction hypothec periods still apply. As such, they should still publish (register) a notice of hypothec at the land registry within 30 days following the date of completion of the work and a prior notice of intention to exercise a hypothecary right within six months following the same date, even if the relevant period was ongoing on March 15, 2020.

This is because article 27 of the Code of Civil Procedure only refers to prescription and procedural periods, not to forfeiture periods. As a result, the authority of the Minister of Justice and the Chief Justice to suspend forfeiture periods (including construction hypothec periods) could be questioned. Given the unprecedented current circumstances, it is difficult to predict where courts will land on these issues. Moreover, the land registry remains open so that it is possible to comply with the publication (registration) requirements for construction hypothecs.

Ontario

On April 9, 2020, Ontario issued O. Reg. 137/20 under the Emergency Management and Civil Protection Act (Ontario Order), which suspended limitation and procedural time periods retroactive to March 16, 2020.

The Ontario Order did not specifically suspend the time periods for preserving and perfecting a construction lien under the Construction Act, but most practitioners concluded that it did. As a result, the conservative advice to owners and lenders was that they should be cautious about paying out the holdback since there could be no guarantee that liens might be registered in the future. At the same time, the conservative advice to potential lien claimants was to register any lien within the statutory time periods notwithstanding the Ontario Order since the effect of the order was far from clear. Overall, the confusion tended to slow down or stop holdback payments to contractors during this period of financial uncertainty, while forcing contractors to abide by the same time periods that had previously governed their lien claims.

To address the situation, on Thursday, April 9, 2020, the Attorney General announced an amendment to the Ontario Order to lift the suspension of limitation and procedural time periods under the Construction Act, effective Thursday, April 16, 2020. Once lifted, parties will have the same amount of time to meet any deadline as had been remaining before the suspension began on March 16, 2020.

With the amendments, subject only to the one-month suspension period, the time periods for preserving and perfecting liens in Ontario remain the same today as they were on March 15, 2020. Owners and contractors can now proceed with some confidence about the rules governing the lien process.

Alberta

Alberta issued Ministerial Order 27/2020 under the Public Health Act on March 30, 2020 (Alberta Order) suspending limitation periods in a proceeding or intended proceeding under a broad list of provincial statutes. The suspension is retroactive to March 17 and extends to June 1, 2020. Various Alberta courts had previously issued notices in late March suspending or extending filing deadlines under the Alberta Rules of Court, with the exception of deadlines for the filing of claims commencing civil litigation. However, the Alberta Order was the first directive suspending substantive limitation periods in Alberta as a result of the COVID-19 crisis.

The list of statutes set out in the Alberta Order is extensive and includes the Limitations Act governing most civil causes of action. Notably, however, the Alberta Order does not reference the Alberta Builders’ Lien Act. As a result, all timelines for the registration and perfection of builders’ liens in Alberta are unaffected by the Alberta Order. Holdbacks can continue to be paid out by owners after conducting the usual title searches for liens, and lien claimants can and must continue to meet all deadlines prescribed under the Builders’ Lien Act for the registration and perfection of builders’ liens.

British Columbia

On March 26, 2020, B.C. issued Ministerial Order MO86 suspending limitation and time periods within which a “civil or family action, proceeding, claim or appeal must be commenced in the Provincial Court, Supreme Court or Court of Appeal.” Unlike orders in certain other provinces, the order was not retroactive and only took effect from March 26, 2020, onward. Although the suspension was arguably narrower than the Ontario Emergency Order, it still created some uncertainty for B.C. projects.

To address the situation, on April 8, 2020, B.C. issued Ministerial Order MO98. The new order will repeal and replace the previous order (MO86) on April 15, 2020. It contains the same suspension as the previous order but specifies that the suspension does not apply to limitation periods or any other mandatory time periods in the Builders Lien Act (B.C.) and related provisions of the Strata Property Act (B.C.). To the extent the suspension in the prior order applied to limitation and time periods in the Builders Lien Act, that suspension expires on April 15, 2020.

As a result, construction industry participants can release holdbacks in accordance with the Builders Lien Act upon conducting the appropriate searches, and lien claimants should file their claims in accordance with the prescribed timelines. So-called “Shimco liens” likely remain subject to the general two-year limitation period found in section 6(1) of the Limitation Act (B.C.). Shimco liens are a unique feature of B.C. law, stemming from Shimco Metal Erectors Ltd. v. Design Steel Constructors Ltd., that allows a party to assert a lien against the holdback by filing a notice of civil claim. Although the time periods in the Limitation Act are suspended, it has always been the case that if no Shimco lien is asserted before the holdback is paid out, the Shimco lien right is extinguished. Accordingly, Shimco lien claimants should make their claims prior to expiry of the applicable holdback period set out in section 8 of the Builders Lien Act.

Conclusion

The variations between how individual provinces are dealing with construction lien periods, together with the complications resulting from suspending and then lifting those suspensions, makes this issue one on which industry participants should consult their legal advisor before acting.

For further information, please contact:

Seumas Woods          416-863-3876
Claude Marseille         514-982-5089
Richard Bell                403-260-9656
Laura Cundari             604-631-4177

or any other member of our Construction Dispute Resolution group.