Substantial Performance – What You Need to Know

From Miller Thomson Lawyers

Under the Ontario Construction Lien Act (the “Act”), a contract is considered substantially performed when the improvement, or a substantial part thereof, is ready for use, or is being used for the intended purposes, and when the improvement is capable of completion or, where there is a known defect, correction can be completed for less than the threshold monetary amount.

Significant amendments to the Act came into effect as of October 1, 2019. These included changes to the monetary threshold for correcting defects that had not been changed since 1983.

Under the amendments, the threshold for achieving substantial performance has been  increased. The threshold is now met when the cost to correct the defect is at a cost of no more than 3% of the first $1,000,000 of the contract price, 2% of the next $1,000,000 of the contract price, and 1% of the balance of the contract price.

Once a project is substantially completed, section 32 of the Act sets out the information to be included in the certificate for substantial performance. Among the requirements, all property identifier numbers (“PINs”) for the premises must be included.

In the recently decided case of Vestacon Ltd . v. ARC Productions Ltd. (“Vestacon”) the Court affirmed the importance that the certificates of substantial performance contain the necessary information set out in the Act.

The project involved constructing a multi-story atrium, linking two separate buildings (located at 134 Peter Street and 364 Richmond Street in Toronto). Three certificates of substantial performance were published: one for each building and one for the full project.

Vestacon Ltd. registered a claim for a lien on June 6, 2016, and perfected the lien on July 19, 2016, for nearly $2 million. The lien was registered against the PIN for 134 Peter Street only.

In determining whether the certificates of substantial performance were valid, the court held that the “integrity of the system with respect to certificates of this nature must be protected,” and declared all three certificates of substantial performance invalid for omitting a proper legal description. The court held that Vestacon Ltd. had thus been prejudiced, as it would have been aware of the correct PINs to register its lien. As a result, the court refused to declare the lien invalid.

The takeaway from the decision in Vestacon emphasizes the importance of including all the requirements of section 32 of the Act in the certificate of substantial performance, and highlights that increased attention should be given when these are completed.