Holdbacks and Construction Liens in Ontario Renovations

When you hire a contractor for a renovation in Ontario, you become part of a payment chain that the law takes seriously. The Construction Act gives everyone who supplies work or materials to your property a way to claim unpaid money: a construction lien on your house. The holdback is the homeowner’s protection against that risk. In simple terms, you keep back a portion of each payment until the lien period has passed, so that if a subcontractor or supplier goes unpaid, there is money set aside to deal with it. The rules are general and apply across the province, but how they work in your particular contract is a question for a lawyer.

What the holdback is and why it protects you

Under Ontario’s Construction Act, every payer in a construction project, homeowners included, must hold back 10% of each payment. This is called the holdback. It is not a discount, a deposit or a negotiating tactic. It is money you owe, but you are required to keep it back for a period of time. The purpose is to create a pool of money that subcontractors and suppliers can claim against if the general contractor does not pay them. Without a holdback, a homeowner who has paid the general contractor in full could still face a lien from a subcontractor who was never paid. The holdback is the owner’s shield.

For a renovation, the holdback applies to each payment you make under the contract. If you pay a draw of a certain amount, you hold back 10% of that draw. The holdback accumulates over the project. At the end of the job, once the lien period has passed and no liens have been registered, the holdback is released to the contractor. Until then, it stays with you.

Why a subcontractor can lien a home that was paid for

A common misunderstanding is that paying the general contractor in full means everyone has been paid. That is not how the law works. A subcontractor or supplier has a direct right to register a lien against the property if they are not paid, even if the homeowner has already paid the general contractor. The homeowner’s protection is the holdback. If a lien is registered, the holdback money can be used to resolve it, but the process is not automatic and usually involves legal advice. This is why keeping the holdback is not optional: it is the only money you control when a dispute arises further down the chain.

How a lien gets registered on title

A construction lien is a claim registered against the title to your property. It is not a lawsuit, but it clouds the title and can affect your ability to sell or refinance until it is resolved. The process has strict timelines. A lien must generally be preserved (registered) within 60 days and then perfected within 90 days after that period ends. For the general contractor, the 60 days usually run from the contract being completed, abandoned or terminated; a subcontractor’s or supplier’s period can run from their own last supply. Perfection usually means starting a court action to enforce the lien. If the deadlines are missed, the lien expires.

When a lien is registered, you may find out from a notice sent by the lien claimant or from a search of the property’s title. A lien claimant can also give the owner a written notice of lien instead of registering one, and that notice matters just as much when deciding whether the holdback can be paid. The lien does not mean you did something wrong. It means someone in the payment chain claims they are owed money. The holdback is there to deal with exactly this situation, but releasing it too early can leave you exposed. The details of how a lien affects your property and what steps to take are legal questions for a lawyer.

The payment schedule and the holdback in your contract

The holdback should be written into your renovation contract. A clear contract sets out the payment schedule, the holdback amount, and when it will be released. The province recommends a deposit of no more than 10% of the contract price, and getting written estimates from at least three contractors. For more on what a contract should include, see the renovation contract checklist for Ontario homeowners. The holdback is separate from the deposit. The deposit is paid up front; the holdback is kept back from each payment during the work.

A well-drafted contract will also say which trades are subcontracted and who pays them. This matters because the holdback protects you against claims from those subcontractors. If the contractor is paying subcontractors directly, your holdback is still required by law. Ask the contractor how they handle holdback and lien claims on their projects. A contractor who is familiar with the Construction Act will have a clear answer.

Questions to ask before signing

• How will the holdback be calculated and tracked?
• When will the holdback be released, and what conditions must be met?
• Will the contractor provide a sworn statement or declaration that all subcontractors and suppliers have been paid before you release the holdback?
• What happens if a lien is registered?

These questions help you understand the process, but they do not replace legal advice. How the Construction Act applies to your contract is a question for a lawyer.

Releasing the holdback

The holdback is released when the lien period has passed with no lien registered and no written notice of lien received. In practice, this means waiting until the 60-day preservation period has run out, then checking the title and your mail. If nothing has been registered or received, you can release the holdback to the contractor, and the Act expects it to be paid promptly once the liens have expired. Since January 1, 2026, on a contract that runs longer than a year, the owner must also release the holdback built up in each year, after publishing a notice, unless a lien has been preserved. The basic rule is that the holdback is your protection until the risk of liens has passed.

Before releasing the holdback, it is prudent to get written confirmation from the contractor that all subcontractors and suppliers have been paid. This is usually a statutory declaration. It is not a guarantee, but it is evidence that the contractor has met their obligations. Keep a copy with your project records. If a lien has been registered, do not release the holdback without legal advice. The holdback may need to be paid into court or otherwise dealt with.

Keeping records

Good records are your best defence if a lien claim appears. Keep the contract, all change orders, payment records, and any lien-related correspondence. Change orders should be written and signed by both sides before extra work is done. If a subcontractor contacts you directly about unpaid work, refer them to the contractor and keep a record of the contact. Do not make side payments to subcontractors without legal advice, as this can complicate the holdback and lien process.

What goes wrong

The most common mistake is releasing the holdback too early. Homeowners sometimes pay the final bill in full because the work looks finished, only to discover weeks later that a subcontractor has registered a lien. Once the holdback is released, you have lost your main protection. Another mistake is not keeping the holdback separate from other payments, so that when a lien appears, the money has already been spent. A third mistake is ignoring a lien notice, hoping it will go away. Liens have strict timelines, and ignoring them can lead to legal action against your property.

On the contractor side, problems arise when the contractor does not manage their subcontractors’ payments. A reputable contractor will understand the holdback rules and will not pressure you to release the holdback early. If a contractor asks you to skip the holdback, that is a warning sign. The law requires it, and skipping it leaves you exposed.

Planning ahead: holdback and your renovation plan

The holdback is part of the financial planning for any renovation. When you budget, remember that a portion of each payment will be held back until the end of the project. This affects cash flow, especially for a large project. It is not an extra cost, but it is money you cannot spend until the lien period has passed. For a step-by-step guide to planning your renovation, see how to plan a home renovation in Ontario, step by step. Choosing a contractor who understands the holdback and lien rules is also part of the planning. See how to choose a renovation contractor in Ontario for guidance on what to look for.

When to get legal advice

The Construction Act is technical, and its application depends on the facts of your project. This page gives general information, not legal advice. If a lien is registered on your property, if you are unsure about releasing a holdback, or if your contract has unusual payment terms, consult a lawyer. The Law Society of Ontario can help you find a lawyer who practises construction law. Your municipality’s building department can answer questions about permits, but not about liens. For permit-related questions, see when a renovation needs a permit.