What is a holdback on closing for new construction in Ontario?

A holdback is an amount withheld from the seller's (or builder's) proceeds at closing to cover work that was not yet complete or deficiencies that were noted at the pre-delivery inspection but not yet rectified. In new construction, it is common for buyers to conduct a pre-delivery inspection (PDI) before closing and to note items — also called deficiencies or "blue tape" items — that the builder must address.

When a builder fails to complete items by closing, the buyer may negotiate a holdback amount that remains in trust until the deficiencies are fixed. This gives the builder an incentive to complete the work and gives the buyer financial protection if the builder delays.

Holdbacks are not automatic — they must be negotiated and agreed upon between the buyer and builder before closing. The builder is not obligated to agree to a holdback simply because deficiencies exist. The terms of the new home purchase agreement and the Tarion warranty process govern how deficiencies are addressed. On the statement of adjustments or trust arrangement, a holdback appears as an amount deducted from the payment to the builder until the specified conditions are met. Your lawyer can advise on the enforceability and documentation of a holdback arrangement in your specific situation.