What is the holdback requirement under the Construction Lien Act?

Under Ontario's Construction Lien Act, property owners in Ottawa must hold back 10% of the value of work completed until 60 days after substantial completion of the project.

This holdback requirement applies to all construction projects in Ottawa and across Ontario, whether it's a small bathroom renovation or a major home addition. The law is designed to protect subcontractors and suppliers who might not get paid if the main contractor defaults.

Here's how the holdback works in practice for Ottawa homeowners:

The 10% Rule
When you make progress payments to your contractor, you must retain 10% of each payment. For example, if your contractor completes $10,000 worth of work, you pay $9,000 and hold back $1,000. This continues throughout the project until substantial completion.

The 60-Day Clock
Once the project is substantially complete (meaning it's ready for its intended use, even if minor deficiencies remain), the 60-day holdback period begins. During this time, any unpaid subcontractors or suppliers can register a lien against your property. After 60 days pass without liens being registered, you can safely release the holdback to your contractor.

What Substantial Completion Means
This is when the work is ready for use - your bathroom is functional, your kitchen is usable, your addition is livable. Small punch list items don't prevent substantial completion. The key date is when you can actually use the space as intended.

Protection for Ottawa Homeowners
The holdback protects you from having liens registered against your Ottawa property. If you pay your contractor in full but they don't pay their subcontractors, those unpaid parties can still put a lien on your home. The holdback system prevents this by ensuring funds are available to pay legitimate claims.

Documentation Requirements
Keep detailed records of all payments and the substantial completion date. Many Ottawa contractors will provide a statutory declaration confirming substantial completion. Take photos showing the completed work and note the date when you first used the renovated space.

Common Mistakes to Avoid
Don't let contractors pressure you to skip the holdback or release it early. Some may claim they need the full payment for cash flow, but this is exactly why the law exists. Also, don't confuse final completion (when every tiny detail is perfect) with substantial completion (when the space is usable).

For complex projects or if liens are registered against your Ottawa property, consult with a construction lawyer familiar with Ontario's Construction Act. The City of Ottawa Building Code Services (613-580-2424) can also provide guidance on substantial completion for permitted work.

The holdback requirement is mandatory under Ontario law - it's not negotiable and protects both you and the trades working on your Ottawa home.