Construction Act: Lien Rights, Holdbacks, and Prompt Payment

Ontario’s Construction Act, cited as R.S.O. 1990, c. C.30, governs how money moves through a building project and gives everyone who supplies labor or materials a set of tools to make sure they get paid. It creates statutory trust funds over project money, requires a 10 percent holdback at every tier, imposes prompt payment deadlines tied to invoices, and grants lien rights against the property itself. It also offers a fast adjudication process for payment disputes. Missing the Act’s deadlines can strip away your rights, so knowing which clock is running matters as much as knowing what you are owed.

Who the Act Protects

Anyone who supplies services or materials to an improvement has the right to a lien on the owner’s interest in the property. That includes general contractors, subcontractors at every tier, material suppliers, equipment rental companies, architects, engineers, and laborers. Workers’ trust funds can also claim liens on behalf of individual workers.

The lien attaches to the land, not just to the person who hired you. A subcontractor who never dealt directly with the owner can still register a lien against the owner’s property if the general contractor fails to pay. Your security follows the property, not the promise of whoever is above you in the payment chain.

Trust Fund Duties on Project Money

Every dollar paid on a construction project is trust money under Part II of the Act. When an owner pays a contractor, or a contractor pays a subcontractor, those funds are legally held in trust for the people further down the chain who did the work or supplied the materials.¹ The recipient is the trustee. The people below are the beneficiaries.

Trustees must pay beneficiaries before using project funds for overhead, profit, or unrelated costs. Since the 2017 amendments, trust funds must be deposited into a bank account in the trustee’s name, with written records tracking money in and out for each project.¹ Multiple project trusts can share one account, but the bookkeeping has to stay separate for each project.

When trust money is diverted, the consequences are personal. Directors and officers who knew about or allowed a breach of trust are jointly and severally liable for the missing funds.¹ The corporate shield does not protect them. A court can look past the company structure to see who actually controlled the money. Spending Project A’s trust money to cover shortfalls on Project B is a breach of trust, even if you intend to pay everyone back.

The 10 Percent Holdback

Part IV requires every payer on a contract or subcontract to retain 10 percent of the price of services or materials as they are supplied.¹ That retained pool sits behind the payment stream to satisfy lien claims if someone down the chain does not get paid.

The holdback cannot be released until all liens that could be claimed against it have either expired or been resolved. For most projects, that means waiting at least 60 days after the relevant triggering event, which depends on your place in the project and whether substantial performance has been certified. Once the window closes with no liens registered, the retained funds can flow to the contractor.

Failing to hold back the required 10 percent makes the payer personally liable to lien claimants for the amount that should have been retained.¹ The money being gone is not a defense. An owner who paid the contractor the full contract price without keeping the holdback still owes lien claimants up to the holdback amount out of their own pocket.

Substantial Performance Splits the Holdback

A contract is substantially performed when the improvement is ready for use or being used for its intended purpose, and the remaining work can be completed at a cost of no more than 3 percent of the first $1,000,000 of the contract price, 2 percent of the next $1,000,000, and 1 percent of any remaining balance.¹

Once substantial performance is certified and published, the holdback retained on work done up to that date becomes its own pool with its own 60-day lien expiry clock. A new, separate holdback then starts accumulating on the finishing work.¹ Getting the timing right determines when each holdback can be released and which liens apply to which pool.

Prompt Payment Deadlines

Part I.1, in force since 2019, sets hard deadlines for construction payments. The whole regime hinges on one event: the owner’s receipt of a proper invoice.

A proper invoice is a written payment request that includes the contractor’s name and address, the invoice date, the contract period or milestone it covers, a description of the services or materials supplied, the amount payable, and payment contact information.¹ A contract can add further requirements, but it cannot override the statutory ones.

Once the owner receives a proper invoice, the clock works like this:

The owner has 28 days to pay the contractor the invoiced amount.¹
If the owner wants to withhold all or part of the payment, they must deliver a notice of non-payment within 14 days of receiving the invoice, specifying the amount and reasons.¹
After a contractor is paid by the owner, they must pay each subcontractor within 7 days.¹

Late payments accrue interest at the prejudgment interest rate under Ontario’s Courts of Justice Act, or a higher rate specified in the contract, whichever is greater.¹ Missing the 14-day window for a notice of non-payment costs the owner the right to dispute that invoice under the prompt payment framework, even if there is a real complaint about the work.

Registering a Lien: What to File and When

Filing a lien is a two-step process, and missing either deadline kills the claim.

What Goes Into the Claim

A claim for lien must include your name and address for service, the name and address of the property owner and the person who hired you, the period during which you supplied services or materials, a brief description of what you provided, the contract or subcontract price, the specific dollar amount you are owed, and a legal description of the premises sufficient for land registry.¹

A street address will not work for the property description. You need the formal legal description from a title search, including lot number, plan number, and any relevant registered interests. Getting this wrong is one of the most common reasons liens run into trouble, so a title search early in the process saves problems later.

The prescribed form is Form 12, available through the Ontario court forms website.² Back the claim with invoices, delivery receipts, signed change orders, and any other documents that show the value you added.

Preservation: The 60-Day Deadline

Preserving a lien means registering the completed Form 12 against the property title at the proper land registry office.¹ Registration puts the world on notice that the property is encumbered and typically prevents the owner from selling or refinancing until the lien is dealt with. Where the property is owned by the Crown, a municipality, or a railway, the lien is preserved by delivering a copy of the claim to the appropriate office rather than registering on title.

For a contractor, the lien expires 60 days after the earlier of the date a certificate of substantial performance is published or the date the contract is completed, abandoned, or terminated.¹ For subcontractors and other claimants, the triggering events can differ and may also include the date they last supplied services or materials, or the date a subcontract is certified complete. Once the 60-day window closes, the lien is gone.

Perfection: Starting a Court Action

Preservation buys you time; it does not last on its own. To perfect the lien, you must start a court action and register a certificate of action against the property title within the time set by the Act, measured from the last day the lien could have been preserved. A lien that is preserved but never perfected expires automatically, and any party can move to have the registration vacated without notifying the lien claimant.¹ Once perfected, a judge determines whether the lien is valid and how the available funds are distributed among competing claimants.

Clearing a Lien From Title

If a lien has been registered against your property, you have several ways to clear it.

The lien claimant can register a voluntary discharge once they have been paid or the dispute is settled.¹
Any person can bring a motion to vacate a lien by paying into court the full amount claimed, plus the lesser of $250,000 or 25 percent of the claim as security for costs. This motion can be made without notice to the lien claimant. The lien is effectively transferred from the property to the money in court.¹
A court can discharge a lien on the basis that the claim is frivolous, vexatious, or an abuse of process.¹
If the claimant misses the preservation or perfection deadline, any person can move to vacate the registration by producing a certificate of search and proof the deadline has passed.

Payment into court is the most common route for owners who need to sell or refinance quickly. It clears title without conceding the claim, and the posted security protects the lien claimant while the merits are sorted out. Letters of credit from a Schedule I Canadian bank are acceptable as security.

Adjudication When Payment Stalls

The 2017 amendments introduced an interim adjudication process under Part II.1 as a faster alternative to litigation. Court proceedings can run for years; adjudication is designed to produce a decision in roughly six weeks.

Either party to a contract or subcontract can refer a dispute to adjudication by delivering a written notice that identifies the parties, describes the dispute, and proposes an adjudicator.¹ If the parties cannot agree, the Ontario Dispute Adjudication for Construction Contracts (ODACC) will appoint one within seven days. The adjudicator then has 30 days after receiving the claimant’s documents to issue a determination.³

The determination is binding on both parties, but only on an interim basis. Either side can still take the matter to court or arbitration, and a court decision will replace the adjudicator’s.¹ Many adjudication results stick because the cost and delay of a full lawsuit are not worth it once there is a reasoned interim decision. Each adjudication addresses a single dispute unless everyone agrees to bundle issues together.

Adjudication cannot be started more than 90 days after the contract is completed, abandoned, or terminated.¹ For subcontracts, the 90-day clock may start earlier if the subcontract is certified complete or the subcontractor last supplied services or materials before the main contract wrapped up.

Signing Lien Waivers

Lien waivers trade away your lien rights in exchange for payment. A conditional waiver takes effect only when a specified payment actually clears your account. An unconditional waiver takes effect the moment you sign it, whether the money has arrived or not. Signing an unconditional waiver before the check clears means you have surrendered your leverage with nothing to show for it.

Waivers can cover partial payments during the project, tied to a specific billing period, or the final payment at project close. Final waivers typically release all remaining lien rights, including any holdback retention. Before signing, verify that the amount stated matches what you have actually received. Mismatches between waiver amounts and real payments are a recurring source of disputes, and once an unconditional waiver is signed, unwinding it is difficult.

1
Government of Ontario. Ontario Code – Construction Act
2
Ontario.ca. Ontario Regulation 303/18 – Forms
3
ODACC. ODACC Adjudication Process Ontario Explained