The Construction Act Holdback in Ontario: What Owners Must Withhold and Why

If you are an owner on a construction project in Ontario — whether you are building a home addition, developing a commercial property, or renovating an existing space — the law requires you to keep a portion of every payment you owe to your contractors and subcontractors in reserve. This is the construction holdback Ontario law mandates under the Construction Act, and ignoring it can expose you to lien claims you thought you had already paid your way out of.

Many owners learn about the holdback requirement the hard way: they pay their general contractor in full, consider the matter closed, and then receive a claim for lien from a subcontractor or supplier they have never even spoken to. Understanding how the statutory holdback works — and what happens when it is not observed — is one of the most important things an owner can know before a shovel hits the ground.

What Is the Statutory Holdback?

The statutory holdback (also called the basic holdback) is a percentage of the value of work done and materials supplied on a construction project that an owner is legally required to retain from each payment made to a contractor. As of writing — verify the current percentage immediately with a lawyer — that figure sits at 10 percent under the Construction Act, R.S.O. 1990, c. C.30, as amended.

The requirement applies to every person in the payment chain, not just the owner. A general contractor must also hold back 10 percent from amounts paid to each subcontractor, and a subcontractor must hold back 10 percent from amounts paid to sub-subcontractors and suppliers. The chain mirrors the construction pyramid: every payor in the project hierarchy has a holdback obligation to the tier below it.

The holdback is not a penalty or a sign of distrust. It exists as a security fund — a pool of money that lien claimants can look to for payment if they are not paid by the party who hired them. It ensures that a subcontractor or supplier has somewhere to turn even if the general contractor has been paid and walked away.

Why Does the Law Require It?

Construction projects involve multiple layers of contracts, and money does not always flow downward the way it should. A general contractor may be fully paid by an owner but still fail to pay a framing subcontractor, an electrician, or a lumber supplier. Without a statutory holdback, those unpaid parties would be left with a breach of contract claim against someone who may be insolvent, difficult to locate, or operating through a numbered company with no assets.

Ontario's Construction Act solves this problem by giving unpaid parties a direct legal claim — called a lien — against the property where they worked, regardless of who hired them. The holdback is the reservoir against which those liens are asserted. An owner who has properly maintained the holdback will not be required to pay more than the value of the project twice; an owner who pays out the holdback prematurely may end up paying twice.

How Long Must the Holdback Be Retained?

The holdback cannot simply be released when the owner feels satisfied with the work. The Construction Act sets out specific conditions and timelines that must be met before it is safe to release each portion of the holdback.

The Basic Holdback Period

The general rule is that the holdback for a contract — or the finishing contract portion of a phased project — must be retained until the lien period has expired for the work under that contract. As of writing, the lien preservation period is generally 60 days from the date of publication of a Certificate of Substantial Performance (if one is published) or from the date the contract is completed, abandoned, or otherwise terminated — whichever applies to your situation. Verify all timelines with a lawyer before acting, as they depend on the specific circumstances of the project and how the contract is structured.

Substantial Performance vs. Completion

Ontario's Construction Act distinguishes between substantial performance (the contract is essentially done, with only minor deficiencies remaining) and completion (the work is fully done and all deficiencies are corrected). The holdback for the finishing work is treated separately, and owners often need to track two holdback periods running concurrently: one for the bulk of the contract and one for the final 10 percent of the contract price representing the finishing work.

This distinction matters because it affects when the 60-day clock begins. Misreading the trigger date is one of the most common mistakes owners make.

Published Certificates and the Payer's Obligation

When a Certificate of Substantial Performance is published in a construction industry publication designated under the Act, it sets the lien period clock running for all parties. Owners are generally not required to publish the certificate, but contractors have a statutory right to do so. Once published, the owner needs to track the expiry date carefully and must not release the holdback until that period has closed without any liens being registered.

When Can the Holdback Be Released?

An owner may release the holdback when:

1. The applicable lien period has expired (as of writing, generally 60 days from the relevant triggering event — confirm with a lawyer);
2. No liens have been registered against the property during that period; and
3. There are no outstanding disputes, set-offs, or counterclaims that would justify retaining additional funds.

If a lien has been registered, the owner should not release the holdback without either obtaining a discharge of the lien or obtaining a court order. The lien must be resolved — through payment, settlement, or litigation — before the owner can safely pay out.

What Happens If an Owner Pays Out the Holdback Too Early?

Releasing the holdback before the lien period expires is not a technical irregularity — it is a serious legal risk.

Personal Liability to Lien Claimants

An owner who pays out the holdback prematurely may be held personally liable to unpaid subcontractors and suppliers who register a lien. Because the holdback was supposed to be the fund from which those claimants would be paid, paying it out early does not eliminate the obligation — it transfers it. The owner may end up paying twice: once to the general contractor who was already paid in full, and again to the subcontractor who registered a lien and was not.

No "Paid in Full" Defence

One of the most important things to understand is that paying your general contractor in full does not shield you from a subcontractor's lien. The Construction Act gives subcontractors and suppliers a right against the owner's property — and against the holdback specifically — that exists independent of whether you knew they were unpaid. Your dispute is with the general contractor; the lien claimant's right runs directly to you.

Frequently asked questions