What Happens If an Ontario Owner Doesn't Hold Back the Required 10%?

The statutory holdback under Ontario's Construction Act only works as intended if owners actually apply it. When an owner pays a contractor the full contract price without retaining the required holdback, the consequences for an owner who failed to holdback in Ontario can be more serious — and more personal — than many expect.

Whether it happens by oversight or because a homeowner simply didn't know the rule existed, failing to hold back can leave an owner facing claims from subcontractors and suppliers they never dealt with directly, even after paying their own contractor in full.

Here's what the statutory holdback is meant to accomplish, what typically happens when it's skipped, and how owners can protect themselves. (Ontario's Construction Act set the statutory holdback at 10% of the price of services and materials supplied as of mid-2026 — figures like this can change, so verify the current percentage before you rely on it.)

The Purpose of the Statutory Holdback

The Construction Act requires anyone paying for services or materials on an improvement to hold back a percentage of what they owe, generally until the applicable lien period passes. That holdback fund exists specifically to make sure money is available to pay subcontractors and suppliers if the party they contracted with — often the general contractor — doesn't pay them.

In other words, the holdback isn't a formality. It's the mechanism that protects everyone further down the payment chain from being left unpaid because of a problem between the owner and the general contractor.

What Generally Happens When an Owner Skips It

• The protection the holdback was meant to provide disappears. If the full contract amount is paid out and the contractor doesn't pay a subcontractor or supplier, there's no separate fund left to draw on.
• Unpaid subcontractors and suppliers can still register liens against the property, regardless of whether the owner already paid the general contractor in full.
• The owner can face exposure beyond the contract price. Generally, an owner who fails to retain the required holdback can remain liable to lien claimants up to the amount that should have been held back, on top of whatever they already paid the contractor.

This is one of the more common and painful surprises in Ontario construction disputes: an owner who believes they've paid in full and closed the book on a project discovers they're still exposed to claims from parties they never had a direct relationship with.

Common Ways Owners Get This Wrong

• [ ] Paying a contractor's invoices in full, on the assumption that "the contractor will handle their own subs."
• [ ] Not knowing the holdback rule applies to smaller residential projects, not just large commercial jobs.
• [ ] Releasing the final payment as soon as the visible work looks finished, without waiting out the applicable lien period.
• [ ] Relying on a verbal assurance from the contractor that "everyone's been paid," without any documentation.
• [ ] Not budgeting for the holdback separately from the contract price, so there's no reserve left if a lien does surface.

Protecting Yourself as an Owner

1. Build the holdback into your payment schedule from the start, so it isn't an afterthought when the final invoice arrives.
2. Don't release the full contract price until the applicable lien period has passed without a lien being registered.
3. Ask for confirmation that subcontractors and suppliers have been paid before releasing any holdback.
4. Keep clear records of every payment made and every amount retained, in case a dispute arises later.
5. Get legal advice promptly if a lien is registered against your property, rather than trying to negotiate it away informally.

Frequently asked questions