On almost any construction job in Ontario, 10 per cent of the money is sitting in a strange kind of limbo. The owner owes it, but cannot safely pay it yet. The contractor earned it, but cannot demand it yet. A subcontractor three levels down may be counting on it to cover the last of their payroll. That 10 per cent is the holdback, and when a project runs into trouble, it is often at the centre of the argument.
Holdback rules are a separate matter from lien deadlines. A contractor can register a perfectly timed lien and still misunderstand how much holdback is available, and an owner can act in complete good faith and still end up paying twice. For owners of Brampton homes and businesses, and the trades who work for them, a working knowledge of these rules can head off an expensive surprise.
This article is general information, not legal advice. The Construction Act has transitional rules that depend on your contract date, and its provisions have been amended several times, so check which version applies to your project before you act.
The Basic Duty
Section 22 of the Construction Act requires each payer on a contract or subcontract under which a lien may arise to retain a holdback equal to 10 per cent of the price of the services or materials as they are actually supplied. The duty applies whether the contract provides for progress payments or payment on completion, and whether or not the contract mentions holdback at all.
“Payer” is the key word. It is not only the owner. A general contractor paying a framer must hold back too, and so must that framer if they engage a sub-trade. Each level retains its own 10 per cent.
The Act also recognizes a separate holdback for finishing work. Once a contract has been certified or declared substantially performed but work remains to be finished, a separate 10 per cent is retained on that remaining work. Holdback may also be retained in forms other than cash in some cases, such as a prescribed letter of credit or bond.
Why It Exists, and Why Owners Should Care
The holdback is a fund of protection for lien claimants, especially those with no direct contract with the owner. A person’s lien is a charge on the holdback the owner should have kept, and on any further amount the owner still owes.
Here is what that can mean for an owner, using a hypothetical. A Brampton homeowner hires a renovator for $100,000 and pays the whole amount on completion. Unknown to her, the renovator did not pay the electrician, who registers a lien in time. Had she retained $10,000, her exposure would generally be limited to that amount, assuming no notice of the lien and no other amount owing. Because she paid out in full without retaining it, she could have to pay up to $10,000 a second time to clear the lien.
Section 24 is the owner’s safe harbour: a payer may make payments up to 90 per cent of the price of what has been supplied, without jeopardy, unless the payer has received written notice of a lien. Once you get that notice, you also need to retain enough to satisfy it. So a letter from a subcontractor saying “I have a lien for $14,000” changes what you can safely pay, and you should get advice before paying anything further.
When Holdback Has to Be Paid
Section 26 now sets out a mandatory regime for release, including annual payments.
Annual release. After each anniversary of the date the contract was entered into, the owner has two tasks. No later than 14 days after the anniversary, the owner must publish a notice of annual release of holdback in the prescribed form, stating the amount and the intended payment date. Then, at least 60 days but no later than 74 days after publishing it, the owner must pay the contractor the accrued holdback for services or materials supplied during the preceding year. The exception is where a lien has been preserved or perfected on the contract and has not been dealt with.
Down the chain. A contractor who gets that payment must pay subcontractors their accrued holdback within 14 days, again unless a live lien exists on the subcontract. Subcontractors in turn must pay those below them on the same basis.
Once liens have cleared. Any holdback not otherwise paid must be paid once all liens that may be claimed against it have expired or been satisfied, discharged or otherwise provided for. The owner has 14 days, and the same period applies at each level below.
Finishing holdback. This is released once all liens that may be claimed against it have expired or been dealt with.
The Act’s transition section matters a good deal here. The current section 26 took effect on January 1, 2026. For a contract made before that day, the first anniversary to which it applies is the second anniversary of the contract falling after that date, and that payment captures all holdback accrued up to then. Older rules, including the former notice provisions and sections that have been repealed, may still affect a particular file, and projects begun before July 1, 2018 can remain under an earlier version of the Act. If you are working from an old template or precedent, have it checked.
Publishing the Notice
The word “publish” has a specific meaning in construction law, and the Act and regulations say how this is done. Usually it means posting a notice in a construction trade newspaper or on an approved publisher’s site. An owner should not assume that an email to the contractor satisfies the requirement. Contractors, meanwhile, should watch those publications and diarize dates, because a published certificate of substantial performance can affect lien timing even if no one told them personally.
Can Holdback Be Used for Deficiencies?
This is one of the most common fights. A contractor abandons a Brampton job, leaving incomplete work, and the owner says: “I will use the holdback to pay the next trade.”
Section 30 is the obstacle. If a contract or subcontract is abandoned or terminated, holdback shall not be applied toward obtaining substitute services or materials, nor in payment or satisfaction of a claim against the contractor or subcontractor, until all liens that may be claimed against it have expired or been dealt with. So there is a sequence to follow: holdback first protects lien claimants. After that, the owner’s set-off rights may come into play, under section 17 and the contract itself.
Similarly, the prompt payment part of the Act allows a person to give reasons for non-payment, which can include a set-off under section 12 or a lien set-off under section 17. So deficiencies can be a valid reason to withhold, but only if the process is done properly and the numbers can be supported.
Prompt Payment Alongside Holdback
Prompt payment and holdback operate together. The regular invoice cycle generally runs like this:
- A proper invoice goes to the owner, monthly unless the contract says otherwise. It must contain the statutory information, such as the contractor’s name and address, the invoice date and period, the contract details and a description of the work.
- The owner has 14 days from receipt to deliver a notice of non-payment, in the prescribed form, setting out the amount and all the reasons.
- Any undisputed amount must be paid within 28 days of receiving the invoice.
- A contractor who is paid must pay subcontractors within seven days, and a subcontractor must do the same for those beneath them, with specific rules if there is a dispute or a partial payment.
Late amounts earn interest under section 6.9, at the prejudgment rate or, if the contract gives a different rate, at the greater of the two. An owner who ignores a proper invoice for 14 days may lose the chance to dispute it through a notice, which is one of the most common and costly errors made by small owners. Whether a homeowner renovation invoice is a “proper invoice” should be checked against the contract and the definition in the Act.
Tools When Money Is Stuck
Trust claims. Under section 8, amounts owing to or received by a contractor or subcontractor on account of the contract price, including holdback, are trust funds for those who supplied services or materials to the improvement and are owed money. Diverting them is a breach of trust, and section 13 can make a director, officer or person in effective control personally liable if they assented to or acquiesced in conduct they knew or ought to have known amounted to a breach. Owners also have trust obligations under section 7. A trust claim does not depend on a registered lien, which makes it useful after a lien deadline has passed.
Adjudication. Construction adjudication is a fast process for disputes between parties to a contract or subcontract over prescribed matters, such as the valuation of work and payment, or other matters the parties agree to. It must generally be started by a notice given no more than 90 days after the contract is completed, abandoned or terminated, or for subcontracts, the earliest of several listed events. A decision is binding on an interim basis, until a court or arbitrator finally decides or the parties agree otherwise. For a mid-sized dispute over a holdback release, this can be much quicker than a court action.
Information requests. Section 39 is underused. A person with a lien or a trust claim, or a mortgagee, can demand certain information in writing, including the contract price, the state of accounts and any labour and material payment bond. The response is due within a reasonable time not exceeding 21 days. This may tell you how much holdback there is before you decide what to do next.
Liens. The lien remains the strongest security. Its deadlines are short and strict, so a holdback dispute should never distract you from your 60-day clock.
The contract claim. Separate from all of these, you may be able to sue for breach of contract or debt, generally within the two-year limitation period. The Small Claims Court can hear a debt claim up to $50,000, although lien actions themselves belong in the Superior Court.
A Practical Checklist
For owners:
- Record the date you entered into the contract and work out each anniversary.
- Keep a running holdback ledger on every payment.
- Do not release holdback or make a final payment without checking title and any lien notices.
- Respond to invoices you dispute within 14 days, with reasons.
For contractors and subcontractors:
- Check that each invoice meets the proper invoice requirements.
- Track accrued holdback separately, by contract.
- Watch for notices of annual release and certificates of substantial performance.
- Keep money received for a project out of general use until those below you are paid.
Sawan Law House LLP’s page on construction and general liens explains related work, and you can use the contact page to set up a review of your contract, invoices and payment ledger. Knowing how much holdback should exist on your job, and at what stage, often clarifies a dispute faster than anything else.