What Owners and Contractors Need to Know about Interest and the Construction Act

Two recent Ontario Superior Court decisions in Thermo Coustics Limited v Pareja, 2026 ONSC 2325 and Hamati Roofing Ltd. v MTCC No. 581, 2026 ONSC 2348 offer important reminders about how interest is treated in construction disputes. Together they underscore the necessity of a clearly written contract as your first and most important line of protection.

Takeaways

• The Construction Act does not specify a prejudgment interest rate for all circumstances.
• Prejudgment interest rates are governed first by the contract or subcontract.
• Without a specified interest rate in a written contract, a party’s claim for interest is subject to the Construction Act and the discretion of the court.
• The authority to award prejudgment interest in most actions under the Construction Act flows from the Courts of Justice Act.
• Where the prompt payment or adjudication provisions of the Construction Act are engaged, the court may award interest at the rate prescribed by the contract or by the Courts of Justice Act.
• The Construction Act does not permit a lien claimant to include interest in the value of the lien.
• Absent an agreement between the parties, a lien claimant may allocate payments received to principal or interest as it sees fit.

Thermo Coustics v Pareja: No written contract, no agreed rate

Thermo Coustics registered a lien against a property for unpaid work involving the removal of asbestos-containing materials. After the defendant failed to respond to a request to admit, deemed admissions were made and Thermo moved for summary judgment. In addition to the invoiced amounts of CAD $20,353.35, Thermo claimed interest of CAD $38,397.69 at 24% per annum.

The court rejected that claim. There was no written contract, no separate agreement about interest, and held the rate printed on an invoice is not by itself proof of an agreed rate. Without those elements, the court held that interest was only available at the rate prescribed under the Courts of Justice Act¹, which was substantially less than what Thermo sought.

Hamati Roofing v MTCC No. 581: How to allocate payments against a lien

Hamati Roofing installed a new roof on several condominium buildings and was left unpaid. Following registration of a lien, MTCC No. 581 paid what it believed was the full amount of the lien claim over the course of two years and brought a motion to discharge the lien.

Hamati opposed the motion, arguing it was entitled to apply the payments received to interest first, with the surplus going to principal. The result was a significant balance owing on the lien.

The court agreed with Hamati. While the Construction Act prohibits including interest in the value of a lien, lien claimants are entitled to recover interest. At common law, where a debtor does not specify how a payment is to be applied, the creditor may allocate it as it sees fit – typically, interest first and then principal. The common law rules apply equally to parties in disputes under the Construction Act.

Analysis and future considerations

Both decisions reinforce that the contract (written or not) shapes everything downstream. As the court noted in Hamati Roofing, privity of contract is a thread running throughout the Construction Act. Your contract should both specify an agreed upon interest rate and set out how late payments should be applied. Absent both of those terms, parties are exposed to uncertainty and ultimately increased legal costs.

When it comes to interest, parties should consider the following questions before making a claim:

• Does the contract or subcontract specify an interest rate?
• If there is no written contract, how will you prove an agreed rate beyond the invoices?
• Which version of the Construction Act governs the improvement?²
• Are there any reasons why a court might disallow or vary the Courts of Justice Act rate?

When payments are made against amounts claimed, parties should be alert to the allocation:

• Does the contract address how past-due payments should be applied (principal or interest first)?
• Has the debtor made a clear direction about how payment should be applied?

These decisions offer a practical reminder that written contracts matter. A contract that specifies a meaningful interest rate can increase recovery in a dispute. A low rate will not necessarily displace the statutory minimum, but a well-drafted, higher rate will be enforced. Taking the time to get those terms right at the outset is far less costly than litigating them later.

Dylan Dilks regularly advises owners, contractors, suppliers, and consultants across all stages of a construction project, from contract formation and project advisory to adjudication and dispute resolution. To learn how Beale & Co’s Toronto office can support your next project or help resolve an existing dispute, reach out to Dylan Dilks.

¹Relying on s. 6.9 of the Act, though it should be noted that there was no analysis in the decision about which version of the Act applied to the facts, and whether the invoices delivered were “proper”. Without this information, questions may be raised about whether s. 6.9 is actually engaged.

²If an earlier version of the Construction Act governs the contract, parties may not be able to rely on the interest provisions in s. 6.9 and 13.19.