What is the statutory holdback in Ontario construction law?

In Ontario, contractors and property owners must hold back 10% of the contract price for 60 days after completion under the Construction Act (formerly Construction Lien Act). This statutory holdback protects subcontractors, suppliers, and workers who might not have been paid by the general contractor.

How Ontario's Holdback Works

The holdback applies to the total contract value, not just progress payments. So if you're paying a contractor $50,000 for a kitchen renovation in Ottawa, you hold back $5,000 until 60 days after the work is substantially completed. This money sits in trust and can only be released once the holdback period expires and no valid liens have been registered.

The 60-day clock starts ticking from "substantial completion" - when the work is essentially done and you can use the space, even if minor deficiencies remain. Your contractor should provide written notice of substantial completion, though completion can occur whether or not formal notice is given.

Why This Protects Ottawa Homeowners

This system protects you from having to pay twice. If your general contractor doesn't pay their electrical subcontractor, that electrician can register a lien against your Ottawa property for the unpaid amount. Without the holdback, you might have already paid your contractor in full but still owe the electrician. The holdback ensures money is available to satisfy legitimate claims.

The holdback also gives you leverage for warranty issues. If your contractor disappears after completion or won't return to fix deficiencies, you still have 10% of the contract value to hire someone else for repairs.

Calculating and Managing Holdbacks

For progress payments, hold back 10% of each payment, not 10% of the total at the end. If you're paying $10,000 monthly over five months, hold back $1,000 each month. By completion, you'll have the full $5,000 holdback accumulated.

Keep detailed records of when substantial completion occurred. Take photos, get written confirmation from your contractor, and mark your calendar for the 60-day release date. You can search for liens against your property through the Ottawa Land Registry Office or online through Ontario's land registry system.

What Happens After 60 Days

If no liens are registered within 60 days of substantial completion, you must release the holdback to your contractor. However, if liens are registered, the holdback money is used to satisfy those claims. Valid lien claimants get paid first from the holdback funds.

Some contractors try to negotiate away the holdback or ask for early release. While you can agree to this, you lose your protection. If problems arise later, you'll have no leverage and might face lien claims with no funds set aside to pay them.

Getting Help in Ottawa

For complex projects or if liens are registered, consult a construction lawyer familiar with Ontario's Construction Act. The Law Society of Ontario (lso.ca) can help you find qualified legal counsel. For general questions about construction law, contact Ontario's consumer protection office at 1-800-889-9768.

Understanding holdback requirements helps you work professionally with contractors while protecting your Ottawa property investment.