What is Construction law? Although it may not be obvious to people passing by a construction site, whether it’s a new home in the suburbs or a high-rise skyscraper in a downtown core, the buildings going up on those parcels of once-bare land are often the focuses of multi-million-dollar legal disputes. Construction projects big and small often involve dozens of parties, from the general contractor to dozens of subtrades, not to mention the lawyers, bankers, engineers, architects, developers, and marketers all converging together to break ground and build after clearing a host of hurdles to get started. 

Indeed, it’s hard to imagine just how many people and professionals are involved in major construction projects in cities and towns across the country. But the fact is that behind every blue safety fence and below each crane is not only the army of labourers and workers but also lies the vast amount of legal paperwork that made the project possible.

Dozens of contracts drawn up for subcontracted trades including plumbers, electricians, drywallers, rebar workers, and painters, along with thousands of pages of regulatory compliance and structural design paperwork to comply with city building codes and bylaws, basically all the makings for a legal nightmare if things go wrong.

Legal services for the construction industry

A lot of people contact Clearway looking for a Construction Law firm these days. It seems there have been a lot of real estate disputes recently. If possible, we always recommend speaking to a law firm about the possibility of alternative dispute resolution.

When talking to a lawyer about your legal issues, you might want to ask the following questions:

• Can I do a construction lien?
• What practice areas do the lawyer you are speaking with focus on?
• What area of construction law do they work on mostly?
• If you need a procurement contract, does the lawyer know contract law?
• What is the best way to handle construction disputes?
• How to enforce construction work thought contracts
• How to protect yourself from employment law with your construction workers
• How can an attorney help me throughout the entire construction process?

Despite the presence of serious and experienced professionals throughout the life of a project from conception to completion, you can bet pretty sure that lots of things go wrong during such a complicated and lengthy process. Subcontractors suing and filing liens after the general contractor fails to pay them.

Owners of condos and townhomes filed lawsuits years after a building was done, alleging the construction was defective, leaks and mould issues abound, the doors falling off their hinges, and the windows fogging up with moisture and growing mildew. A neighbouring property gets damaged in the process, and their business is interrupted by noise and dust and vibrations from excavations and heavy equipment. 

Construction lawyers and law

So the question about what is construction law and all it entails is not necessarily easy to answer with all it entails, with so many moving parts and potential for problems along the way for any project of nearly any size. Whether it’s building a residential home or a commercial office building, construction law comes into play all along the way, demonstrating a multi-faceted nexus between bureaucrats, white-collar professionals, and blue-collar workers all coming together to get things built, people housed, and businesses up and running. 

But the construction business is, of course, fraught with risk and is subject to both macro and microeconomic forces that can derail projects with delays and rising costs, setting the stage for disputes that often end up in front of an arbitrator or in a Court of law. Rising commodity prices, supply chain issues, international conflicts, bankruptcies and insolvencies, all these factors can converge and conspire to halt construction on major buildings, putting people out of work while making those waiting to move in wait even longer, sometimes years in worst-case scenarios. 

Read more about the law:

• How do you know if you’ve been charged with a crime?
• Can your AirBnb host watch you on the camera?

Construction management for risk

There are a lot of legal risks when getting involved with construction. There was even a recent sexual harassment lawsuit relating to construction podcasters in Toronto, Ontario.

When applying for government contracts, you are going to need to show that you are covered from a construction law point of view. The government doesn’t want to get involved with shady companies. You don’t want dirt to come by during tenders. You also don’t want your lenders to find dirt on your company, like sexual harassment lawsuits, or personal injury claims.

Make sure to have strong contracts for your partnerships, performance bonds, and to ensure project delivery. Contracts will also help you receive prompt payments.

Builder’s liens and construction lawsuits 

As with so many industries and businesses, everything can go well and smoothly until the bill comes due. For construction trades and contractors, builder’s liens registered against the title of a property can encumber and prevent the owner from moving forward with a sale if a lien remains registered against the lands.

Provincial builder’s lien legislation, meanwhile, prescribes an amount of a contract’s value that is to be held back until the “substantial performance” of a project is certified. But even after a property owner releases funds that make up a holdback amount – usually a set percentage of a contract’s overall value – once a project is substantially done, that doesn’t mean companies that provided labour and materials and the project will be satisfied. More often than not, change orders to a construction contract can cause extra costs to pile up and leave subtrades out of pocket. 

While the Builders Lien Act, as it’s entitled in many provinces, limits property owners’ liability, it also lays out timelines for releasing construction contract funds to general contractors and places expiry deadlines on lien claims. Hiring a good construction lawyer, especially for smaller contractors, is never a bad investment, especially if things go off the rails and disputes over contractual extras and change orders occur. 

Construction contracts

For example, in 2021 a trio of subcontractors had to take a lien claim dispute all the way to the Court of Appeal for Saskatchewan after building a 7-11 convenience store. The companies, which included two excavation firms, had lien claims expire because they didn’t register them and didn’t give the property owner “formal notice.”

The convenience store owner had released the contractual holdback amount to its general contractor, except money owed for a change to the original contract. A lower court had found that the owner’s liability was equal to that change order’s amount, but the subtrades appealed on claims that the store’s owner incorrectly released the holdback amount despite their registered lien claims. 

But the court found the owner was perfectly fine to release the holdback when it did, which amounted to just over $136,000. Other subcontractors had filed lien claims, which the project’s general contractor paid out within a few months, eventually clearing the land’s title of all lien claims. But the trio of plaintiffs in Hastings Enterprises Ltd. v 7-Eleven Canada Inc. hadn’t filed their claims in time. 

Indeed, even if the court had found the holdback amount was paid into court too soon, the subcontractors could still have claimed monies owed against the holdback. However, the appeals court ruled that they would’ve been entitled to payment if they provided timely and “formal notice” of the lien claims to the owner, which they failed to do. 

The Canadian Construction Documents Committee 

But legal disputes between contractors and construction companies are common and to be expected when so much time and money is involved. Luckily for construction companies in Canada though, the Canadian Construction Documents Committee offers standardized contracts and documents online. The committee is made up of construction company owners and representatives from the Association of Consulting Engineering Companies, the Canadian Construction Association, Construction Specifications Canada, and the Royal Architectural Institute of Canada. In addition, the committee also includes a member of the Canadian Bar Association from its construction law section. 

The committee touts its documents as being easy to read and compatible with other industry contracts, but that doesn’t necessarily insulate industry players from legal troubles. Lawsuits abound in the construction industry between contractors during the building process, but also buyers of condos and townhomes in buildings after completion.

Newer buildings that leak are a common focus of many lawsuits over breaches of home warranties and construction defects or deficiencies. Moreover, insurance companies are common targets in construction lawsuits over defects, with companies often seeking millions of dollars in indemnity claims after the discovery of shoddy work and other deficiencies. 

Home warranties, negligence, and construction defects litigation

One major case that landed in the Supreme Court of Canada in 1995 was the case of Winnipeg Condominium Corporation No. 36 v. Bird Construction Co. In that case, a developer hired Bird Construction to build an apartment building that was later converted into condos in 1978. The company had subcontracted out the building’s masonry work and later got a consulting engineering firm to look over the building. The company that owned the building had begun to worry about its exterior cladding, but the consultants they hired found it “structurally sound.” 

But in 1989, a massive portion of the building’s cladding fell off, though no one was injured. A subsequent inspection found defects in the structure and the masonry work, requiring the building’s exterior cladding to be replaced, which the Winnipeg Condominium Corp. had to pay for out of its own pocket.

The company sued Bird for negligence, claiming shoddy design and workmanship. In the appeal to the Supreme Court of Canada, the Winnipeg Condominium Corp. sought to hold the building’s original general contractor “tortiously liable for negligence,” even though it wasn’t the building’s original owner. The condominium corporation wanted to recover the costs of fixing the building’s defects, claiming negligent construction on the part of Bird.

Construction projects and the law

The Supreme Court allowed the company’s appeal, finding a lower court had mistakenly ruled that repair costs were not “recoverable” under Canadian tort laws. The Supreme Court’s ruling states that the law had “progressed” to allow “subsequent purchasers” of a building to go after contractors, subtrades, architects, and engineering consultants who are involved in a building’s design and construction. The court found that they all owe a “duty in tort” to buyers if it’s demonstrated that construction defects are “foreseeable” and enough to “pose a substantial danger to the health and safety” of residents.

If a building’s owner can show that contractors and designers were negligent in causing the defects, they can be held responsible for the “reasonable cost” of fixing the problems and removing the dangers even if the defects hadn’t manifested and caused any injuries or property damage.

The lower appellate court, the Supreme Court panel found, had relied on outdated case law from the British House of Lords that shouldn’t “be seen as having strong persuasive authority in Canadian tort law.” The Supreme Court of Canada, in turn, found that the lower court had cited a precedent that was “inconsistent” with newer case law that clarified that tort and contractual duties could exist concurrently together. As well, it didn’t properly apply the legal test for recovering economic losses established in Anns v. Merton London Borough Council. The so-called Anns’ test was adopted by the Supreme Court of Canada in 1984 in the case of City of Kamloops v. Nielsen. 

Municipal bylaws and building inspectors

In that case, it dealt with the relatively novel concept of what duties existed on the part of cities that have municipal bylaws and building inspectors that approve construction projects. The Supreme Court of Canada’s ruling said the case raised “rather difficult questions” about whether a city can be found responsible for negligence if it failed “to prevent the construction of a house with defective foundations.” 

The builder of the house in Kamloops, according to the Supreme Court’s ruling, originally planned on constructing the home on a hillside for his father, at the time a city alderman in Kamloops, British Columbia. The city’s building inspector approved the plans and gave him a building permit. But the foundational footings were set upon “loose-fill,” and a city inspection later found the foundations went against the approved building plans. 

Eventually, more inspections by the city resulted in a stop-work order issued due to “structural defects.” The builder later hired professional engineers to redesign the construction plans, and the city’s stop-work order was lifted once they were submitted. But the builder, according to the ruling, didn’t follow the engineers’ plans and kept on building the home based on the original, defective design. The engineers he hired walked away, “disavowing all liability” and went and told the city’s building inspector. 

Subcontractors and construction law

Despite being ordered to halt construction, the builder ignored the city’s letters and inspectors and kept on building the hillside home. The builder eventually sold the property to his father, who intended to live in the home with his wife in retirement. Weeks after the sale though, the city told them that the building was under a stop-work order, concerned over its structural integrity. The home builder’s father fought the city, claiming he was being harassed about problems that were “his and his alone” and not a matter for the city to be involved. 

Later, city employees in Kamloops went on strike and the municipality’s building division was left without staff for several months. The builder’s father moved into the home even though the city never inspected the building again and never issued an occupancy permit. Two years later, though, they sold the house to the plaintiff in the case, who hadn’t been told of the property’s “chequered history.” Despite hiring an inspector before buying, the contractor hadn’t found any problems with the home’s foundation, though he hadn’t crawled underneath to inspect it. 

It wasn’t until a year later that a plumber found the problems when fixing a burst pipe, noticing that the home’s foundations had subsided while in a small crawl space under the building. The plaintiff sued in 1979, claiming misrepresentation, breach of contract, and negligent construction. He also sued the City of Kamloops for failing to enforce its own stop-work order on the home and failing to condemn the building for dangerous defects. A lower court attributed fault for the home’s problems to both the sellers and the city, 75 percent against the home’s former owners and the rest against the City of Kamloops. 

Supreme Court of Canada

The City of Kamloops unsuccessfully appealed the ruling, and later appealed to the Supreme Court of Canada. It claimed that municipalities owe no duty of care to homeowners when it comes to enforcing bylaws and stop-work orders. In that, the City of Kamloops claimed it wasn’t liable for any negligence or damages suffered by the homeowner. 

Despite knowing the home was unsafe, the records of the case didn’t show if the city had taken any action to enforce its building bylaw. City inspectors had told the council of the problems and defective work, and the council also knew that people were living in the house despite the lack of an occupancy permit. 

The Supreme Court, however, found no evidence of “bad faith or impropriety” on the part of city officials. The court, therefore, found that it wasn’t a case of “underlying negligence” by municipal public employees that would allow for a “private law” cause of action of negligence. Cities are under no duty to enforce bylaws, and therefore can’t be sued by people “suffering harm from non-enforcement.”  

Basically, the court found that cities have the discretion to enforce bylaws and stop-work orders in court. But unless there’s evidence of corruption or bad faith, then the “mere failure to take legal” action to enforce something like a stop-work order doesn’t allow people to sue for negligence as a “private cause of action.” With that in mind, the court allowed the city’s appeal to dismiss the lawsuit against it and found that the seller of the home was fully liable for the “economic losses” of the buyer of the defective home. 

Construction Law Conclusion 

There can be a lot of legal issues that can come up under construction law. Below are some common ones:

• How property law intersects with construction law
• How to protect your employees and construction professionals on a worksite
• Mechanic’s liens
• Understand adjudication issues when ordering supplies from other countries (jurisdiction)
• How to protect yourself from construction claims, and understanding the Construction Act
• Understanding zoning bylaws

Clearly, the complexity of construction law is only compounded as time goes on with cities and towns adopting new building codes and regulations with some regularity. The cost of land has only gone up in the last few decades, and both domestic and international forces beyond any singular nation or region’s control can hamper the pace of progress. In Canada, the standardization of contractual documents does dampen the “legal anxiety” that can come along with signing onto multi-million-dollar projects for all involved.

But legal liabilities tied to the construction of homes, office towers, hotels, stadiums, and other major infrastructure projects make the business of building both costly and inherently risky. From the city inspectors who approve projects and issue permits to the lawyers and bankers who ink the deals to finance construction projects, the process of breaking ground to cutting ribbons is a long and winding road paved with both risk and reward. 

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