What Is a Builders Lien Holdback on a New Home in British Columbia?

When you close on a newly built home or finish a major build, you may see a "holdback" mentioned. It sounds like a fee, but it is really a safety mechanism that protects people who worked on the project and helps protect your title from their claims.

This article explains the holdback rules under British Columbia's Builders Lien Act in plain terms. How they apply depends on how your build or purchase is structured, so a lawyer should look at your documents.

This article covers the law of British Columbia.

What a holdback is

A builders lien is a claim that someone who supplied work or materials can register against a property when they are not paid. The holdback exists so that money is set aside to answer those claims.

In plain words, a holdback is a slice of the money owed on a project that is kept back rather than paid out. If a trade or supplier is not paid, there is still money set aside that they can look to, instead of only the property. Whether a particular payment on your project is covered depends on the contracts involved, so it is worth having a lawyer review them.

Under the Builders Lien Act, the person primarily liable on each contract or subcontract under which a lien may arise must retain a holdback of 10% of the greater of the value of work or material provided and the amount paid on account.

The holdback cannot be taken from workers, material suppliers, architects or engineers.

Who holds it and where

The owner must establish a holdback account at a savings institution for each contract under which a lien may arise. The money cannot be applied to completing the contract or to other purposes until the possibility of a lien is exhausted.

Because the account is required for each contract under which a lien may arise, a project with several contracts may involve more than one account.

There is an exception: the holdback account requirement does not apply to contracts under $100,000 in aggregate value. The 10% holdback itself is a separate obligation under the Act.

If you are buying from a developer, who is the "owner" and who handles the holdback depends on the structure of the project and your contract. Ask your lawyer to confirm this.

How long the holdback lasts

The holdback period expires 55 days after a certificate of completion is issued, or otherwise 55 days after the head contract or improvement is completed or abandoned. A claim of lien may be filed no later than 45 days after the certificate of completion was issued. The payment certifier must decide within 10 days of a request whether work is complete.

It helps to keep the two periods apart. The holdback period is how long the money must stay put, while the 45-day period is the time limit for filing a claim of lien after the certificate of completion was issued. If the holdback period is not counted from a certificate of completion, it is counted from the completion or abandonment of the head contract or improvement instead. Because the dates depend on which of these applies, ask for the paperwork rather than assuming.

These time limits are the kind of detail that can be amended. Confirm the current periods with a lawyer before relying on them for a closing or payment decision.

How it protects you as a buyer or owner

If the holdback is properly retained and kept in the account until the lien period passes, there is money available to deal with unpaid claims rather than leaving them against the property. If it is released too early or spent on other things, the risk of a lien on your property rises, which is why closing documents and lawyers pay close attention to it.

If you are a lien holder or trust beneficiary, you may request the head contract terms, holdback account details and payment particulars from the owner, who must respond within 10 days of delivery of the request.

What to do next

• Find out who the owner is for lien purposes and who is retaining the holdback.
• Ask for the date of any certificate of completion, since the time limits run from it.
• Confirm in writing that holdback money will stay in the account until the possibility of a lien is exhausted.
• Keep copies of the contracts, payment records and any lien notices.
• Ask a lawyer to check the current time limits and the closing adjustments before you complete.

These questions can help you understand where your project stands before you complete or make a final payment:

• Which contracts on the project could give rise to a lien?
• Has a certificate of completion been issued, and if so, on what date?
• Where is the holdback money being kept, and who can confirm it?
• Are there any unpaid trades or suppliers that you know about?

Frequently asked questions