CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Patrick Morin, Stikeman Elliott LLP
Compensation The parties may incorporate liquidated damage provisions such that an owner is entitled to com - pensation or set-off rights if certain milestone and completion dates are not achieved, subject generally to force majeure and owner-caused delays. The amount of the compensation must represent a genuine pre-estimate of the actual cost or loss to the owner attributable to such delay and not a penalty to the contractor, as Canadian law limits the enforcement of penalty clauses. Incentives and Bonuses Payment incentives and early-completion bonuses are also common features of construc - tion contracts. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance While ultimately dependent on the nature and scope of the applicable construction project, as well as the parties involved, it is common for owners to seek additional types of security from a contractor. That security is most commonly in the form of labour, material and performance bonds, and letters of credit, although in some cases an owner may insist on some form of cor - porate guarantee. 7.6 Liens or Encumbrances in the Event of Non-payment Each of the Canadian provinces gives statu - tory construction, builders’ or mechanics’ lien rights to those providing work, materials and/ or services supplied to a construction project. The applicable legislation sets out the applicable rights and procedures. Generally, construction liens are registered against the project lands, with owners having the ability to remove the lien in two ways:
• by discharging the lien, which requires the lien claimant to deliver and register a release (typically following payment of the amount owing under the lien), or requires the owner to obtain a court order that the lien is invalid (ie, because the lien claimant has failed to meet the prescribed time periods for preserving and/or perfecting the lien); or • by vacating the lien, which requires the owner (or the general contractor on their behalf) to pay, or to provide a bond or letter of credit for, the full amount of the claim for the lien to the court (such monies will stand as security for the claim in lieu of the property and the lien will be removed from the title to the project). Most provincial construction lien statutes pro - tect owners who abide by the hold-back pro - visions of the statute and retain the specified percentage (usually 10%) from each progress payment under the construction contract. These hold-back funds can be paid into court if a lien is registered against an owner’s lands, to have the lien discharged from title to the lands. In so doing, the owner’s liability is capped, provided the owner had no direct contractual obligations to the lien claimant. In Quebec, construction liens (legal hypothecs) are governed by the Civil Code and subsist with - out registration for 30 days after the end of the work, after which they must be registered. There are no hold-back provisions in the Civil Code, and such legal hypothecs secure the value add - ed by the work, services or supplied materials. 7.7 Requirements Before Use or Inhabitation In most cases, an occupancy permit or final approval, based on compliance with building codes and other applicable regulations/stand - ards, must be issued by the local municipality
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