Payment Holdback Required:

Question: Is it illegal in Ontario to pay a contractor’s final invoice in full without keeping a 10% construction holdback?

Answer: In Ontario, owners and other payers generally must retain a 10% statutory holdback on construction and renovation improvements until lien rights expire under Construction Act, R.S.O. 1990, c. C.30, and paying the final invoice in full too early can increase your risk of being personally liable to unpaid subcontractors or suppliers; Forseti Legal Services is a Paralegal service that helps homeowners and businesses across Ontario understand holdback rules, timelines, and safer payment steps to reduce lien and trust-risk exposure, so call (705) 806-7577 to get practical guidance before releasing final funds.   This information is general only and doesn’t replace legal advice for your specific project.

Statutory Required Payment Holdbacks

Why It Is That Paying the Final Invoice In Full Upon Project Completion Is Actually Illegal

There are likely few times when paying an invoice in full is against the law.  Indeed, failing to pay an invoice in full is usually against the law by constituting as a breach of contract; however, in the realm of construction or renovation, meaning projects to improve a property, paying in full without retaining a holdback may be, and likely is, unlawful.

The Law

The Construction Act, R.S.O. 1990, c. 30, formerly known as the Construction Lien Act, statutorily requires the owner of a construction project or renovation project involving improvements to property, whether residential, commercial, industrial, agricultural, or other type, to holdback ten (10%) percent from payments due until the expiry of the time in which a lien may be preserved.  Furthermore, where a project owner fails to properly holdback payment as statutorily required, the project owner may be held liable for payment to any and all subcontractors, subtrades, suppliers, among others, who were unpaid by the contractor or subcontractors along the chain of supply.  Specifically, the Construction Act states:

As per the Construction Act, a ten (10%) percent holdback is required from each party involved within a property improvement project whether such is a construction project or a renovation project. This means that the property owner must withhold ten (10%) percent when paying the general contractor, who must then withhold ten (10%) percent when paying subcontractors, and so on throughout the various layers of payors within the labour and material supply chain of the project.  The holdback requirement will be lifted once the risk of a lien being filed against the improved property expires, which usually occurs sixty (60) days after the project is completed or a Certificate of Substantial Performance is issued.

Infrequent project owners as laypeople, such as homeowners, may be unaware that upon completion of a the project work, whether the project involves a pool installation, roofing shingle replacement, landscape upgrades, replacing kitchen cabinetry, basement wall waterproofing, or other improvements and renovations, that the ten (10%) percent holdback requirement is mandated by law. Failure to perform the statutory holdback constitutes as a breach of trust whereas the Construction Act creates a trusteeship and the failure to act in accordance with the trusteeship, the homeowner, among others, may be found liable for breach of trust.

Conclusion

Upon completion of a project to improve property or upon issuance of a Certificate of Substantial Completion, owners of projects, contractors, subcontractors, and anyone else involved in the supply chain, are required to holdback ten (10%) percent of the payment due for a period of sixty (60) days. After the sixty (60) days, presuming an absence of any liens registered against the property, the holdback provision expires and the holdback funds become payable.