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N.B. Construction Remedies Act: 7 Key Changes from the Mechanics’ Lien Act

Published:

September 9, 2021

Author(s):

• Matthew Hayes, KC
• Parker Menzies

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Updated February 28, 2024.

The New Brunswick Construction Remedies Act substantially came into effect on November 1, 2021, and took full effect on April 1, 2022 when the holdback trust account provisions came into force. The new Act has replaced New Brunswick’s Mechanics’ Lien Act, both clarifying and expanding the rights – and the responsibilities – of owners, engineers, architects, contractors, and effectively every stakeholder, including the financial institutions with which they do business, involved in construction contracts in New Brunswick. Construction industry stakeholders in both the commercial and the residential real estate sectors are wise to review and to revise their standard practices, processes, agreements, forms, and supplementary conditions to ensure they comply with the Construction Remedies Act (CRA). Here are seven of the key changes the CRA made to New Brunswick’s builders’ lien regime.

1. New Owner’s Trust

Owners are most affected by the trust changes under the CRA.

Owner’s Trust. While contractors and sub-contractors were always subject to trust provisions under the Mechanics’ Lien Act and continue to be under the CRA, completely new to the CRA is the owner’s trust. Under the CRA, an owner’s trust fund is created to the benefit of all contractors, sub-contractors, suppliers, and others that have supplied services or materials for an improvement. The owner’s trust fund consists of:

• Funds advanced to the owner to finance the improvement.
• Any amount that becomes due to a contractor pursuant to a contract for the improvement.
• The amount of the unpaid contract price in the owner’s control when substantial performance of a contract has been certified.
• Proceeds from the sale of the land.
• Amounts received from an insurance policy covering the improvement.

Under the CRA, owners, contractors and sub-contractors must take care not to misappropriate trust funds intended for a specific project or risk liability for breach of trust. This requires owners to put in place the necessary checks and balances to ensure they appropriately administer the trust funds.

Permitted Uses. However, the CRA also provides for specific permitted uses of owner, contractor and subcontractor trust funds. For example, if the owner takes out a loan to pay for services, it can apply trust funds equal to the amount of that loan to repay it.

Breach of Trust. Breach of trust by an owner, contractor or sub-contractor is a provincial offence punishable by a fine of up to $10,200, with the possibility of imprisonment for repeated offences. Directors and officers who acquiesce to a corporation committing a trust offence can also be personally liable for the offence.

2. New Lien Deadlines

The CRA changes the timing in which lien rights arise – and expire. For owners, the changes affect when the risk of a lien exists and how to respond to avoid business interruption. For contractors, sub-contractors, engineers, architects, suppliers and others providing materials or services, lien deadlines are strictly enforced; the changes affect their access to the protection of a lien.

Standard Registration Deadline. Under the Mechanics’ Lien Act, the timeframe allowed to register a claim for lien varied depending on the service provided. The CRA standardizes the time for registering a claim for lien to 60 days from the earlier of: the date of completion of the contract or subcontract, the date services were last provided, or the date a certificate of substantial performance is issued. In addition, contractors, subcontractors and workers each have a separate list of events that start the 60-day timer to register a lien.

New “Substantial Performance” Definition. The CRA is more definitive about what constitutes “substantial performance”.  Unlike the Mechanics’ Lien Act, under the CRA a contract is substantially performed when the improvement under the contract is ready for use or is being used for the purposes intended and when the improvement is capable of completion within a specified amount. The CRA also specifies that a contract is completed when the cost of completing it is not more than 1% of the contract price.

Time to Perfect. The time for perfecting a claim for lien continues to be 90 days from the date of registering the claim for lien. To perfect a claim for lien, a lien claimant must commence an action to enforce the lien with the court and register a certificate of pending litigation against the land subject to the lien. Similar to the Mechanics’ Lien Act, an action to enforce a lien must be set down for trial within one year of commencing the action unless the court grants a request for an extension.

3. New Holdback Requirements

The CRA implemented new holdback requirements, one of which stuck – and one that was scrapped.

Reduced Holdback Amount. The CRA reduces the holdback requirement to 10% on the contract price, a reduction from the 15% the Mechanics’ Lien Act required. The owner must retain the holdback funds until 60 days after the date the certificate of substantial performance is signed or the declaration of substantial performance is made. The CRA will allow for payment of holdback on an annual or phased basis – but only if certain prerequisites are met, including a contract price of at least $10M and an explicit contractual term allowing for annual or phased holdback payment. Owners & contractors are wise to review and if necessary revise their standard form contracts to include annual or phased holdback payment if this is an option they want under the CRA.

Owner’s Holdback Trust Account Scrapped. When N.B. originally implemented the CRA, the most significant change to the holdback requirements was the obligation on owners to establish a holdback trust account with a financial institution. When the CRA was introduced, this new obligation imposed a significant administrative burden on owners and contractors. After gauging feedback from industry stakeholders, effective June 16, 2023 the legislature amended the CRA to remove completely the requirement that the owner place the holdback funds in a separate holdback trust account.

4. Applicable to the Crown

Different again from the Mechanics’ Lien Act, the CRA applies to the Crown and local governments. However, many of the CRA’s requirements apply differently to the Crown and local governments than to typical owners. For example, a lien doesn’t attach to Crown or local government owned land; instead, the lien attaches as a charge on the holdback retained by the Crown or local government. Additionally, the owner holdback trust account requirements don’t apply to the Crown or local government; they need merely retain the holdback.

5. No Contracting Out

The CRA doesn’t allow for contracting out and specifically provides that any waiver or release of any rights, benefits or protections provided under the CRA is void. This broad application provides contractors and suppliers with better protections but leaves owners with less flexibility in managing their large infrastructure projects.

6. New Prescribed Forms

Other administrative changes that took effect with the coming into force of the CRA are new, updated and modified standard forms. Standard forms are available in the Regulations.

7. Transition Period

Many construction stakeholders will be required to simultaneously administer liens under both the Mechanics’ Lien Act and the CRA regimes during a transition period. The CRA applies to all construction contracts entered into on or after November 1, 2021. However, the Mechanics’ Lien Act will continue to apply to:

• Contracts entered into before the CRA’seffective date.
• Contracts entered into before,but amended after, the CRA takes effect.
• Sub-contracts and the supply of services or materials under a contract or sub-contract entered into before the CRAtakes effect.
• Although the requirement to maintain a holdback trust account was effective from April 1, 2022 to June 16, 2023, owners are not required to maintain a holdback trust account for contracts entered into during that period.

Please contact your McInnes Cooper lawyer or any member of our Construction Law Team @ McInnes Cooper to discuss how we can help you comply with the N.B. Construction Remedies Act.

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