Construction Trust Claims | Construction Act Trust Provisions Ontario

Trust Claims

What this issue involves

A construction trust is a statutory mechanism under Ontario’s Construction Act that treats certain project funds as “trust money” that must be used to pay the people who supplied labour, services, or materials to an improvement. When funds move through a project’s payment chain, they are not always free for the recipient to use as they wish — the legislation can impose a legal obligation to keep that money available for those who earned it.

Trust claims arise when money intended for the project is received but parties lower in the construction chain are not paid. Unlike a construction lien (which attaches to land or holdback security), this remedy focuses on the funds themselves. It is separate from contractual rights and becomes especially important when lien rights are unavailable or when project funds have been diverted, potentially creating a breach of statutory trust.

These obligations protect payment integrity across construction projects. They also become critical during financial distress on a job because trust funds may be treated differently from general operating funds. Early identification of a trust issue can prevent disputes from escalating and clarify available recovery options.

When this issue typically arises

Problems often appear when an owner pays a contractor but subcontractors or suppliers remain unpaid, or when a contractor receives project funds and uses them for another project or operating expenses. These situations commonly lead to disputes involving unpaid project money under the Act.

Issues may also arise during project close-out while holdbacks are being administered, or when payments stop flowing down the construction chain, increasing the risk of misuse of funds.

Why timing and strategy matter

Trust-related disputes are frequently discovered late, after funds have already been spent or the project enters financial difficulty. The earlier the issue is identified, the more options usually exist to preserve leverage, clarify payment obligations, and limit losses.

These considerations often overlap with lien rights, holdback disputes, and adjudication. Coordinating strategy across remedies is therefore important when developing an overall construction dispute approach.

Common mistakes and risks

A common misconception is that construction payments automatically become “revenue” once received. In some circumstances, the Construction Act treats certain funds as trust money, meaning they must be applied toward project payments rather than diverted elsewhere. Misuse of those funds can create personal liability risks.

Another mistake is assuming trust remedies are the same as lien rights. They are not. Trust actions focus on specific project funds and obligations tied to their control, while liens relate to security against land or holdback. Each option has different advantages, limits, and strategic value depending on the dispute.

How Fridmar Law can assist

Fridmar Law helps clients determine whether trust obligations may apply, identify risk points in the flow of project payments, and understand how these claims interact with other remedies. We advise owners, contractors, subcontractors, and suppliers on how trust issues relate to unpaid invoices, holdback disputes, lien preservation, and applicable deadlines.

Where disputes escalate, we coordinate trust strategy with broader litigation considerations, including how allegations involving misuse of project funds may affect settlement leverage and recovery planning.

When to speak with a lawyer

You should consider consulting a construction lawyer if payment has stalled and there are signs that project funds were received but not paid down the chain. Legal advice is especially important where money may have been redirected, where corporate decision-makers are involved, or where financial distress is developing on the project.