Last Updated: August 23 2026
In Ontario, is it illegal to pay the final construction invoice in full without a statutory holdback?
In Ontario construction and renovation projects, paying the final invoice in full without retaining a 10% statutory holdback can be unlawful because the Construction Act requires each payer to retain a holdback equal to 10% of services or materials “as they are actually supplied,” until lien claim time limits expire (or liens are satisfied). This applies even if the contract says “payment on completion,” and an owner may be personally liable for required holdbacks under Construction Act, R.S.O. 1990, c. C.30, with sections including Construction Act holdback sections 22 and 23. If you want to confirm what you must hold back (and how long) for your project and avoid payment or trusteeship risk, Civil Litigations Paralegal Services can help by phone at (416) 229-1479.
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Statutory Required Payment Holdbacks
Why It Is That Paying the Final Invoice In Full Upon Project Completion Is Actually Illegal
In the realm of construction work or renovation projects, paying an invoice in full without retaining a holdback may be against the law. While it is generally perceived that failing to pay an invoice in full is considered a breach of contract, for business within the contracting trades paying an invoice in full is likely unlawful. A holdback from full payment is required for the protection of suppliers who may go unpaid by the party above within the supply chain.
Note: Please contact Civil Litigations Paralegal Services by phone at: (416) 229-1479 to discuss any specific questions that you may have.
The Law
As per the Construction Act, R.S.O. 1990, c. 30, which prior to July 1 2018 was known as the Construction Lien Act, the owner of a project involving improvements to property, thus being any type of property including residential, commercial, industrial, agricultural, among other types, is statutorily required to holdback ten (10%) percent until the time within which a lien may be preserved expires. 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:
Holdbacks
Basic holdback
22 (1) Each payer upon a contract or subcontract under which a lien may arise shall retain a holdback equal to 10 per cent of the price of the services or materials as they are actually supplied under the contract or subcontract until all liens that may be claimed against the holdback have expired or been satisfied, discharged or otherwise provided for under this Act.
Separate holdback for finishing work
(2) Where the contract has been certified or declared to be substantially performed but services or materials remain to be supplied to complete the contract, the payer upon the contract, or a subcontract, under which a lien may arise shall retain, from the date certified or declared to be the date of substantial performance of the contract, a separate holdback equal to 10 per cent of the price of the remaining services or materials as they are actually supplied under the contract or subcontract, until all liens that may be claimed against the holdback have expired or been satisfied, discharged or otherwise provided for under this Act.
When obligation to retain applies
(3) The obligation to retain the holdbacks under subsections (1) and (2) applies irrespective of whether the contract or subcontract provides for partial payments or payment on completion.
Permissible forms of holdback
(4) Some or all of any holdbacks may, instead of being retained in the form of funds, be retained in one or more of the following forms:
1. A letter of credit in the prescribed form.
2. A demand-worded holdback repayment bond in the prescribed form.
3. Any other form that may be prescribed.
Personal liability
23 (1) Subject to subsections (2), (3) and (4), an owner is personally liable for holdbacks that the owner is required to retain under this Part to those lien claimants who have valid liens against the owner’s interest in the premises.
Limitation
(2) Where the defaulting payer is the contractor, the owner’s personal liability to a lien claimant or to a class of lien claimants as defined by section 79 does not exceed the holdbacks the owner is required to retain.
Same
(3) Where the defaulting payer is a subcontractor, the owner’s personal liability to a lien claimant or to a class of lien claimants as defined by section 79 does not exceed the lesser of,
(a) the holdbacks the owner is required to retain; and
(b) the holdbacks required to be retained by the contractor or a subcontractor from the lien claimant’s defaulting payer.
How determined
(4) The personal liability of an owner under this section may only be determined by an action under this Act.
As prescribed by the Construction Act, a ten (10%) percent holdback is statutorily required of each party involved in any property improvement project such as construction projects or renovation projects. Accordingly, the project owner must holdback ten (10%) percent from the full payment when paying the general contractor; and subsequently, the general contractor must then do the same when paying subcontractors, and so on throughout all levels within the labour and material supply chain involved with the project. Once the project is finished or once a Certificate of Substantial Performance is issued and the risk of a lien being placed upon the improved property expires, which is typically sixty (60) days afterward, the holdback requirement ends and payment of the holdback money becomes due.
Interestingly, and most contractors will know this; however, small project owners, such as homeowners as laypeople will unknowing, the homeowner that pays the invoice from a contractor in full upon completion of a renovation contract, whether roofing, landscaping, building an addition, replacing kitchen cabinetry, or other household improvements, is required to holdback ten (10%) percent. Failing to do so is a breach of trust whereas the Construction Act, statutorily, creates a trusteeship and by failing to act in accordance to the trusteeship, the homeowner, among others, could be found liable for breach of trust.
Conclusion
Owners of projects, along with everyone throughout the supply chain, from contractors to subcontractors, and so on, are required to holdback ten (10%) percent of payment upon the completion or issuance of a Certificate of Substantial Completion. Generally, the holdback provision expires after sixty (60) days.
NOTE: A large number of queries like “lawyers near me” or “best lawyer in” typically indicate a need for prompt and proficient legal assistance rather than a specific designation. In Ontario, licensed paralegals are governed by the same Law Society that supervises lawyers and can represent clients in specific litigation cases. Skills in advocacy, legal analysis, and procedural competence are vital to this function. Civil Litigations Paralegal Services provides legal representation within its licensed parameters, focusing on strategic planning, evidence preparation, and compelling advocacy directed at obtaining efficient and advantageous outcomes for clients.
