By Stephanie Lanz and Leor Margulies
Robins Appleby
For the past nine years, the construction industry has been governed by new Construction Act (the Act) which came into force in 2017 and replaced the previous Construction Lien Act. Owners and contractors have adapted to the 2017 legislation which was further updated in 2019 with the prompt payment and adjudication rules. Even with the updated Act that sought to modernize outdated legislation, legal professionals and trade suppliers and contractors, have continued to be critical of inefficiencies that exist or are caused by the drafting of the Act and have pushed for further amendments.
On Jan. 1, 2026, Bill 216, Building Ontario for You Act (Budget Measures), 2024 and Bill 60, Fighting Delays and Building Faster Act, 2025 came into force. The bills amend the Act to make some significant changes which aim to create efficiencies, speed up lien holdback releases to trades and also make smaller refinements that may prove to have positive impact for owners and trades alike. This article will focus on two of the significant amendments to the Act being, (1) the new obligation for annual holdback release; and (2) the amendments to prompt payment rules.
Annual holdback release
By and large the most substantial change introduced by the new bills is the requirement for an owner to release their holdback annually. Effective Jan. 1, 2026, owners must release all accrued holdback on each anniversary of the contract date. For contracts entered into on or after Jan. 1, 2026, this obligation applies immediately. For contracts entered into before that date, the first annual release is deferred by two years. For example, a contract entered into on Jan. 15, 2023, will require its first annual holdback release on Jan. 15, 2027. As a result, all first annual holdback releases will occur on contract anniversaries in 2027.
The amendments also introduce an owner’s obligation to publish a notice of annual release of holdback within 14 days after each contract anniversary, stating their intention to release the holdback. This notice must be published online in an electronic newspaper or website. Once the notice is published, the owner has 74 days to release the accrued holdback to the contractor. The contractor then has 14 days from receipt of the holdback to disburse the holdback down the pyramid to each subcontractor in accordance with the applicable subcontract. Following each annual release, the holdback shall be at zero and begin to accrue again for release on the next contract anniversary.
Lien rights under the Act remain
Initially, Bill 216 proposed that after the notice of annual release of holdback, there would be a 60-day period for contractors or subcontractors to file a lien arising from the supply of services or materials included in a notice of annual release of holdback. During that period, lien claimants would have to register or provide notice of the lien, or they would lose all lien rights for work done in that year. However, the potential of Bill 60 revoked that proposal due to the potential of a multitude of early lien registrations. As a result, lien rights shall continue to expire 60 days following the earlier of (i) the date notice of substantial performance is published; or (ii) the date the contract is completed, abandoned or terminated. Where no notice of substantial performance is published, lien rights expire 60 days from the earlier of (i) the date the contract is completed; or (ii) the date the contract is abandoned or terminated.
Since lien periods have not changed, in many cases, payments still have to be made long before lien rights expire in accordance with prompt payment rules.
Intention and implications of annual release requirements
The new annual release requirement is meant to accelerate cash flow and increase overall efficiency over the lifespan of a project. This is helpful to trades to get them paid their holdbacks more regularly, rather than often having to wait for substantial completion.
Moreover, where previously the holdback was once a form of security for owners and a source of funds that owners could utilize to cover deficiencies, maintenance or corrective work, it will no longer be available for such use. No deductions for such claims will be permitted. Owners will need to negotiate other forms of security requirements into their contracts, and lenders will have to fund the holdback to ensure all holdback to ensure sufficient funds are available for each annual release.
Owners who have entered into a CCDC-5A contract with multiple trades directly, should also note that each contract will have its own annual holdback release, requiring close monitoring of multiple timelines.
Overall, this new annual release obligation will likely prompt more frequent communication between owners and contractors to align on the amount of holdback, which may benefit the working relationship, but may also lead to more adjudication due to more frequent payment disputes.
It will also result in changes to construction lending and cost consultant practices and increase interest costs (due to earlier holdback releases) and lender/cost consultant administration costs.
Amendments to the prompt payment rules
The bills have introduced two main amendments to the prompt payment regime. First, section 6.1 of the Act updates the definition of a “proper invoice” by adding more detailed requirements for a proper invoice, including “any other information that is necessary for the proper functioning of the owner’s accounts payable system that the owner reasonably requests.” Owner’s must now be very clear to contractors of their expectations and criteria for a proper invoice, albeit they must be reasonable, which could perhaps become a topic of dispute in and of itself.
The second main amendment is the new deeming provision to Section 6.1(2) of the Act, which states that an invoice that does not meet the requirements of a proper invoice is deemed to be a proper invoice unless, within seven days of receipt of the invoice, the owner notifies the contractor in writing of the deficiency in the invoice and of what is required to address it. This shifts the administrative review and burden to the owner, who now loses the ability to claim that an invoice is deficient after the seven-day period elapses. If there is no objection within seven days, the owner will generally have to pay the invoice within 28 days. If there is a valid objection within the seven-day period, the contractor will be required to revise the invoice. Even if the invoice is deemed to be a proper invoice, the owner still retains the right to object to the correction of the amount claimed.
This amendment will likely prompt owners to strengthen their internal organization and review process, and to clearly define proper invoice requirements in their contracts at the outset.
Key takeaways:
- As of Jan. 1, 2026, owners must release construction holdback annually, fundamentally changing and accelerating the cash flow dynamics and eliminating holdback as a long-term security tool. This new rule cannot be contracted out of, and developers will have to be creative to find a new form of security or practice for corrective or deficient work.
- Lenders and cost consultants will have to align holdback release procedures with the new annual requirement, which will also affect interest costs and administrative costs of lenders and cost consultants, to be passed on to builders.
- Amendments to the prompt payment regime place greater administrative responsibility on owners, who must now quickly identify invoice deficiencies or risk being deemed to have received a proper invoice.
Leor Margulies is Real Estate Group Co-Head, and Stephanie Lanz is Associate, Robins Appleby LLP. robinsappleby.com.
