How much should I hold back from my contractor?

In Ontario, you must hold back 10% of the value of work completed under the Construction Lien Act - this is mandatory for your protection as a homeowner in Ottawa.

This holdback isn't optional or negotiable - it's required by provincial law to protect you from potential liens if your contractor doesn't pay their subcontractors or suppliers. Here's exactly how it works in Ottawa:

The 10% Holdback Rule

For any construction project in Ottawa, you hold back 10% of each progress payment until 60 days after substantial completion of the work. So if your contractor completes $10,000 worth of work, you pay $9,000 and hold back $1,000. This continues throughout the project.

The 60-day clock starts ticking from when the work is substantially complete - not when you make final payment or when minor deficiencies are fixed. During this period, any unpaid subcontractors or suppliers can file a construction lien against your Ottawa property.

How to Handle Holdbacks Properly

Set up a separate bank account for holdbacks - don't just keep the money in your regular account. This shows good faith and makes it easier to track. Many Ottawa homeowners use a simple savings account specifically for this purpose.

Your contractor should understand this requirement - if they push back or seem unfamiliar with the Construction Lien Act, that's a red flag. Legitimate contractors in Ottawa work with holdbacks regularly and factor them into their cash flow.

Payment Schedule Best Practices

Never pay large amounts upfront. A typical payment schedule in Ottawa might be: 10% to start, then progress payments tied to completion milestones, with 10% held back from each payment. For a $50,000 renovation, you might pay $4,500 to start (10% minus holdback), then $9,000 when framing is complete, $9,000 when drywall is finished, and so on.

When to Release the Holdback

After 60 days from substantial completion, if no liens have been filed, you can release the holdback. Before releasing it, do a final walkthrough to ensure any deficiencies are corrected. Some Ottawa homeowners hold back a small amount (1-2%) for 30 days after the main holdback release to ensure everything is working properly.

Red Flags to Watch For

Be wary of contractors who demand payment in full upfront, don't understand holdback requirements, or pressure you to release holdbacks early. Also watch for contractors who aren't registered for WSIB - you can verify this at wsib.ca/clearances.

For more guidance on contractor agreements and payment schedules, contact the City of Ottawa Building Code Services at 613-580-2424. They can also help you understand if your project requires permits, which affects your holdback timeline.

The Construction Lien Act protects Ottawa homeowners, but only if you follow the rules properly. That 10% holdback is your safety net - use it.