Industry Insight· Updated August 2026· Reviewed by ProScore Editorial Team

Ontario Construction Act Holdback Rules: What Contractors Must Know

Ontario's Construction Act requires homeowners and general contractors to hold back a percentage of each payment until lien periods expire. Here's what every contractor and homeowner needs to understand to stay protected.

Ontario's Construction Act requires that a statutory holdback — a portion of each payment — be retained on construction projects until lien periods have expired. Understanding how holdbacks work protects both contractors and homeowners from costly disputes.

What Is a Statutory Holdback Under Ontario's Construction Act?

Ontario's Construction Act (formerly the Construction Lien Act) governs how money flows on construction projects in the province. One of its most important mechanisms is the statutory holdback: the owner of a property is required to hold back a set percentage of each progress payment made to a contractor, and the contractor must in turn hold back the same percentage from subcontractors and suppliers.

The purpose is straightforward. Subcontractors and suppliers who aren't paid by the general contractor have the right to place a lien on the property. The holdback fund exists as a pool of money to satisfy those liens if they arise. Without it, a homeowner could pay a general contractor in full — and still find a lien registered against their home by an unpaid subtrade.

The Construction Act applies to virtually all improvements to land in Ontario, including residential renovations, new builds, and commercial projects. If you're a general contractor in Ontario or a homeowner managing a renovation, this law affects you directly.

How the Holdback Percentage Works in Practice

Under the Construction Act, the basic holdback rate is 10% of the value of services or materials supplied under a contract or subcontract. This holdback must be retained from every progress payment — not just the final one.

Here's a simple illustration of how the money flows on a residential renovation:

Payment Stage	Invoice Amount	Holdback (10%)	Amount Released
Progress Draw 1	$20,000	$2,000	$18,000
Progress Draw 2	$30,000	$3,000	$27,000
Final Draw	$10,000	$1,000	$9,000
Holdback Release	—	$6,000	$6,000

The holdback accumulates throughout the project and is released only after the lien period expires without a lien being filed — or after any filed liens are resolved.

It's worth noting that the Act distinguishes between basic holdback (the ongoing 10%) and finishing holdback (a separate mechanism that applies when a contract is substantially performed). Both have their own timelines and release conditions. On larger or more complex projects, these distinctions matter significantly.

Lien Periods: When Can Contractors File?

The lien period is the window during which a contractor, subcontractor, or supplier can register a lien against a property. Under the Construction Act, the key trigger dates are:

•For the contract as a whole: the lien period runs from the date of **substantial performance** of the contract.

•For subcontractors and suppliers: the lien period generally runs from the last date they supplied services or materials to the project.

The standard lien period in Ontario is 60 days from the applicable trigger date. This was extended from the previous 45-day period under amendments that came into force in 2019, and it remains 60 days today.

Once the lien period expires without a lien being filed, the holdback can be released. If a lien is filed, the owner must retain the holdback until the lien is vacated, discharged, or otherwise resolved.

Substantial performance is a defined term under the Act — a contract is substantially performed when the improvement is ready for use or is being used for its intended purpose, and the cost to complete or correct any remaining work is no more than a prescribed threshold. Determining substantial performance on a complex project often requires legal or professional advice.

What Changed in 2026 and Why It Matters Now

The Construction Act has been evolving. The major 2019 amendments introduced prompt payment obligations and an adjudication process — and the industry has been absorbing those changes ever since. As of 2026, there is ongoing regulatory and industry attention on how these rules are being applied in practice, particularly for residential projects where homeowners often aren't aware that the Act applies to them.

Prompt payment rules now require owners to pay contractors within 28 days of receiving a proper invoice, and contractors to pay subcontractors within 7 days of receiving payment from the owner. Failure to comply triggers escalating rights, including the right to suspend work.

The adjudication process gives parties a faster, lower-cost way to resolve payment disputes during a project — rather than waiting for litigation. An adjudicator's decision is binding and must be paid within a short window, even if a party intends to challenge it later.

For contractors working across Ontario — whether you're an HVAC contractor, a roofer, or a general contractor managing multiple trades — staying current with these obligations isn't optional. Non-compliance can mean losing the right to lien, being liable for prompt payment penalties, or facing adjudication at an inconvenient time.

Common Holdback Mistakes Ontario Contractors Make

Even experienced contractors run into problems with holdback administration. Here are the most common pitfalls:

•Releasing holdback too early. Some contractors release the holdback before the lien period has fully expired, leaving them exposed if a lien is subsequently filed. The lien period clock must be confirmed — don't assume it has run.

•Not retaining holdback from subcontractors. The obligation runs down the chain. A general contractor who pays a subtrade in full without retaining the holdback is personally on the hook if that subtrade is later the subject of a lien claim.

•Confusing substantial performance with project completion. A project can be substantially performed — and the lien clock starts ticking — while there is still work left to finish. Contractors who don't publish a certificate of substantial performance when required can create uncertainty about when the lien period begins.

•Failing to keep proper records. Holdback disputes often come down to documentation. Contracts, invoices, payment records, and lien searches should all be retained carefully.

•Ignoring prompt payment timelines. With 28-day and 7-day windows now embedded in law, slow-paying owners and contractors face real consequences. Subcontractors have more leverage than they did before 2019.

What Homeowners Need to Understand

Homeowners renovating their properties are not passive bystanders under the Construction Act — they are owners in the legal sense, and the Act places obligations on them too.

If you hire a general contractor directly, you are required to hold back 10% of each progress payment. If you pay your contractor in full without retaining the holdback and a subcontractor later registers a lien, you may be required to pay that amount again — effectively paying twice for the same work.

Before releasing any holdback, homeowners should:

1.Confirm the lien period has expired. A lawyer or title search can confirm whether any liens have been registered against the property.

2.Obtain a statutory declaration from the contractor confirming that all subcontractors and suppliers have been paid.

3.Review the contract to ensure it clearly defines substantial performance and the conditions for holdback release.

Homeowners who work with contractors that score highly on the ProScore Trust Index — which weighs reputation, verified credentials, customer sentiment, and business transparency — are better positioned from the start. A contractor with a strong track record of transparent business practices is less likely to create the kind of payment disputes that make holdback rules feel urgent.

ProScore has analyzed data across 16,400+ Ontario contractors and 39,000+ reviews, drawing on 10+ data sources and 20+ trust signals. Contractors who operate with integrity tend to leave a clear footprint — and that footprint matters when money is on the line.

How Contractors Can Protect Themselves

For contractors, the Construction Act is both a shield and a sword. Used correctly, it protects your right to be paid. Ignored, it can cost you.

Practical steps to stay protected:

•Include clear holdback and payment terms in every written contract.

•Track lien period dates carefully for every project and every subcontract.

•Issue certificates of substantial performance when appropriate and publish them as required by the Act.

•Use the adjudication process if a payment dispute arises — it's faster and cheaper than court.

•Keep detailed records of all invoices, payments, and communications.

•Consider consulting a construction lawyer before starting large projects, especially if you're new to the Act's requirements.

Contractors who want to demonstrate their professionalism and business transparency to potential clients can claim their ProScore profile. A verified, well-maintained profile signals to homeowners that you operate above board — which matters more than ever in a market where payment disputes are a real concern.

Frequently Asked Questions

Does the Ontario Construction Act apply to small residential renovations?

Yes. The Construction Act applies to virtually all improvements to land in Ontario, including residential renovations of any size. Homeowners who hire contractors for work on their homes are considered "owners" under the Act and are subject to holdback obligations, regardless of the project's value.

What happens if a homeowner doesn't hold back the required amount?

If a homeowner pays a contractor in full without retaining the statutory holdback and a subcontractor or supplier later registers a lien, the homeowner may be required to pay the liened amount a second time, up to the value of the holdback that should have been retained. The holdback is the homeowner's primary protection against this scenario.

How do contractors find out if a lien has been filed against a project?

Liens against real property in Ontario are registered on title through the Land Registry Office. A title search — which can be conducted by a lawyer or through Ontario's electronic land registration system — will reveal any registered liens. Contractors and homeowners should conduct a lien search before releasing holdback funds at the end of a project.

Build Your Next Project on a Foundation of Trust

The Construction Act exists because construction is complicated and money disputes are common. Understanding your obligations — whether you're a homeowner or a contractor — is the single best way to avoid them.

If you're looking for contractors who demonstrate the kind of business transparency and professionalism the Act rewards, search ProScore's scored contractors across Ontario. With coverage across 880+ Ontario cities and scores built from reputation, credentials, customer sentiment, and business transparency, ProScore makes it easier to find contractors worth trusting before the first payment is made.

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