The last 10% of a renovation payment needs its own plan. Under Ontario’s Construction Act, the statutory holdback helps protect the owner and the construction payment chain while lien rights exist. Agree on how it will be calculated and released before the first invoice arrives.
What the 10% holdback is
Section 22 of Ontario's current Construction Act generally requires each payer under a contract or subcontract where a lien may arise to retain a basic holdback equal to 10% of the price of services or materials as they are supplied. The obligation applies even when the contract uses progress payments or says payment is due on completion.
| Amount | Purpose | Common confusion |
|---|---|---|
| Deposit | Funds paid near contract start under agreed terms | Assumed to be the holdback |
| Progress payment | Pays for agreed completed milestones or supplied work | Paid by calendar instead of evidence |
| Contingency | Homeowner budget for uncertainty or approved changes | Handed to the contractor automatically |
| Statutory holdback | Retained against construction-lien exposure | Used as a general deficiency reserve |
A contract should show how the 10% is calculated on each payment and how HST is treated. It should also describe a separate deficiency or closeout process if the parties want one. Keep statutory holdback, deficiency payments, and dispute procedures distinct.
Why subcontractors can matter to the homeowner
Construction liens protect people who supply services or materials to an improvement, even when they contract with someone below the owner in the payment chain. A homeowner may have paid the general contractor while a subcontractor or supplier remains unpaid. The holdback is part of the statutory protection for that risk.
This does not mean a homeowner should call every supplier every Friday. It means payment records and statutory steps matter. Use a written contract, identify the contractor's legal name, pay traceably, keep invoices and change orders, and understand who is supplying major work. Keep a receipt for every payment.
When the holdback can be released
The release date is not simply the day the contractor says the job is done. The Act ties lien expiry and holdback release to defined events and procedures. Those can include certification or declaration of substantial performance, contract completion, abandonment, termination, last supply, and published notices. The applicable route depends on the project.
Ontario amended its holdback and lien rules effective in 2026. Current provisions include specific notice and timing mechanics, and not every old government article or contractor template reflects them. Use the current Act and legal advice for the actual release calculation. Check current deadlines rather than relying on an older contract template.
- Identify the contract and improvement covered by the holdback.
- Confirm the event that started the relevant lien-expiry period and whether required notice was published.
- Search title and investigate any written notice or known claim as counsel advises.
- Do not release if a lien has been preserved or perfected unless it has been satisfied, discharged, or otherwise provided for under the Act.
- Document the release calculation and payment.
Substantial performance is not the same as perfect completion
Construction law uses substantial performance as a defined threshold, with specific legal criteria. A project can be substantially performed while finishing work and deficiencies remain. The Act also addresses a separate holdback for finishing work supplied after substantial performance. Do not invent the threshold from a percentage typed into the payment schedule.
The contract should still have a practical closeout list: required inspections, ESA or fuel records, manuals, warranties, keys, cleanup, deficiency correction, and final documents. Those obligations sit beside the statutory holdback rules. One does not erase the other.
What not to do with the holdback
- Do not pay it early because the contractor offers a small discount.
- Do not treat it as permission to withhold unrelated amounts indefinitely.
- Do not spend it on a replacement contractor after termination without legal advice; the Act restricts how holdback may be applied while lien exposure remains.
- Do not confuse a warranty claim months later with the statutory lien holdback.
- Do not assume a signed waiver can erase the Act. Get legal advice before agreeing to terms that affect lien rights.
A payment schedule that stays readable
Tie progress payments to completed, observable milestones. On each invoice, show the gross value of supplied work, approved changes, applicable HST, previous payments, current 10% holdback, and net amount due. Reconcile it to the contract every time. Show the holdback calculation on each progress invoice.
Ontario's home renovation consumer guide also emphasizes written contracts, detailed scope, estimates, payment terms, and receipts. Our renovation quote guide covers the contract before work starts; the change-order guide covers changes after it does.
Call a lawyer before the money moves when
- The contract is terminated, abandoned, seriously delayed, or disputed.
- A subcontractor, supplier, or contractor threatens or registers a lien.
- You receive written notice of a lien or a demand involving the holdback.
- The contractor asks for early release, a waiver, a bond, or an unusual holdback arrangement.
- The project is large, phased, longer than a year, or has unclear substantial-performance documentation.
- You want to use withheld money to pay somebody else or correct defaulted work.
Before releasing a payment with unresolved lien concerns, have an Ontario construction lawyer review the file. Keep the calculations, notices, invoices, and release instructions together so the final payment has a clear basis.
