Getting paid on your construction project: the 10% rule that decides who gets paid

The construction mess

Picture two people standing on the same job site.

The first is a contractor. He framed the house, supplied the materials, and sent his final invoice three weeks ago. He hasn’t heard a word since. Every few days he checks his account, and every time the money isn’t there. He’s starting to wonder if he’ll ever see it.

The second is the homeowner. She paid the general contractor in full the day the work wrapped up. Then a letter arrived from a plumber she’d never met, saying he was never paid for his work and he’s putting a lien on her house. Now she’s stuck paying for the same work twice.

Two people, two opposite fears. In Ontario, the same simple procedure helps both of them. It’s called the holdback.

What is a holdback?

Every time someone pays for construction work, they keep back 10% of the price of the services or materials supplied before handing it over.

For example, on a $100,000 job, the person paying holds onto $10,000. Ontario’s Construction Act requires it on every project, whether you pay in stages, by milestone, or all at once at the end.

The reason is simple. Construction runs in a chain. The homeowner pays the general contractor. The general contractor pays the subcontractors. The subcontractors pay their suppliers. If the money stops somewhere in the middle, the people who actually did the work can get left holding nothing. The 10% is a small pot, set aside at every level, so there’s always something there to pay them.

Why isn’t the holdback mine to spend?

The holdback is not your money; you’re only holding it.

The law treats it as a trust fund for the workers and suppliers below you. Say your general contractor walks off the job. As the owner, you generally can’t dip into the holdback to cover the cost of finishing. That money has to stay there for the subcontractors who already showed up and did their part.

The same thing happens further down the chain. Once you pay the general contractor and it holds back its own 10%, that money becomes a trust fund for its subcontractors. At that point the contractor is a trustee.

How many holdbacks are there?

Most of the time, when people say “holdback,” they mean the basic one. But three can show up on a single job:

1. Basic holdback. The standard 10%, kept back on the price of the services or materials as the work gets done.
2. Finishing holdback. A separate 10% on work or materials supplied after the contract is certified or declared substantially performed. This is used to protect the trades who come in at the very end.
3. Notice holdback. If you receive written notice of a lien, you must hold back enough to satisfy that claim, on top of the basic 10%.

When do I get the money?

On a normal project, the basic holdback generally has to be released once the 60-day lien preservation period expires after the certificate of substantial performance is published and no liens have been preserved or perfected.

Simply put, when the project is officially certified as “substantially performed,” that certificate gets published, and a 60-day clock starts. During those 60 days, an unpaid worker or supplier can commence a claim against the owner. This is what “perfecting” a lien means. If the 60 days pass and nobody has done so, the holdback is released.

The holdback is not your money. You hold it in trust for the trades who already did the work.

As of January 1, 2026, for longer projects, a holdback must be released annually and cannot be contracted out of. It used to be optional and available only on large contracts (those over $10 million); now it applies to all of them. On each anniversary of the contract date, the owner must release the holdback that built up over the past year.

The timing is specific. The owner must publish a notice of annual release (Form 6) within 14 days of the anniversary, stating the amount and intended payment date. The owner must then pay no earlier than 60 days and no later than 74 days after that notice. Once the contractor receives the funds, it has 14 days to pay its subcontractors. The only thing that delays this is a lien that has been preserved or perfected against the holdback and not yet resolved.

For contracts signed before January 1, 2026, the first annual release is deferred. It begins on the second anniversary of the contract after that date, when all the holdback built up so far is paid, with yearly releases continuing after that.

And if someone unreasonably delays releasing your holdback without justification and forces you to go to court, a judge can award significant costs against them. Where a project is delayed through no fault of the subcontractor, that subcontractor may also be entitled to claim extended holdback financing costs, including the interest that piled up because the funds came late.

The trap that catches owners

Now back to our homeowner who is dealing with a lien after she already paid in full.

If you skip the mandatory 10% holdback and pay the general contractor in full, and a subcontractor down the line never gets paid, you can become personally liable to valid lien claimants for the amount that should have been held back.

That’s the “double-payment” trap: you pay the contractor, then pay the lien claimants, and then have to sue the contractor afterward to try to recover what you paid out. Holding back the 10% is what keeps you out of that mess.

Not sure where you stand on a holdback? Because these deadlines are strict and the money moves fast once the clock starts, it is worth getting advice. Presvelos Law P.C. can walk you through where you stand and what to put in place.