SNF News

Holdback Payment and Limitation

On March 20, 2020, the Ontario government suspended any limitation period for the duration of the emergency. A copy of that regulation can be found here. This is an example of the law of unintended consequences.

It makes perfect sense for the usual run-of-the-mill limitation period (i.e. commence an action within 2 years of the day that the cause of action arose, subject to discoverability). It does not make sense for the provision of the Construction Act mandating the date upon which a claim for lien must be preserved. This date is crucial to the flow of money on a construction project. Holdback cannot safely be released until after the basic preservation dates for all liens have passed, be it 45 days or 60 days depending on whether the old Act or the new Act applies. If a payor cannot safely pay the holdback – because a construction lien could be registered far beyond the basic preservation date (relying on the extension of that date in accordance with the limitation period suspension), then payors will not pay that holdback; similarly, construction financing will not be forthcoming for the holdback.

If sections in the Construction Act dealing with the preservation of liens can be classified as limitation periods (and there is certainly controversy about that assumption), then holdback cannot be released until after the shutdown and limitation periods start to run again. Accordingly, for the moment, payors cannot safely pay holdback – even assuming that the payors have received the holdback from other payors one rung above them on the construction ladder.

For what it is worth, we think that the better view is that the preservation and perfection dates are not limitation periods and that anybody relying on the limitation extension to extend the time to register a claim for lien, or to commence an action and register a certificate of perfection, may be sorely disappointed when the dust settles. There is no reason for an extension; a claim for lien and a certificate of perfection can still be registered electronically

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.