Can an owner hold back on releasing holdback? Yes, if it complies with the Construction Act
An owner in a construction contract is required to retain 10% of the price of the services and materials as they are supplied under the contract. The holdback is to be retained until all liens that may be claimed against the holdback have expired, been satisfied, discharged or otherwise provided for under the Construction Act. The requirement to retain holdback applies from large infrastructure projects to small home renovations.
Once there are no claims against the holdback, an owner shall release holdback unless the owner publishes a notice of non-payment of holdback form under section 27.1, Form 6 (the “Notice of Non-Payment of Holdback”). The Notice of Non-Payment of Holdback is a prescribed form, see: Notice of Non-Payment of Holdback. The form allows the owner to advise if it is not paying all or part of the holdback.
The Notice of Non-Payment of Holdback must be published in a construction trade newspaper (defined in the Act) within 40 calendar days of:
- the applicable certification or declaration of substantial performance; or
- if substantial is not published, the date on which the contract is completed, abandoned, or terminated.
The owner also needs to notify the contractor of the publication within three calendar days of the date of the publication.
There are no court decisions that have dealt with the owner’s failure to release holdback if the owner has not published a Notice of Non-Release of Holdback. If an owner does not release holdback as required by the Construction Act, a contractor may litigate or adjudicate for the release of the holdback.
This article is not legal advice and is provided for informational purposes only