Holdback obligations under builders lien legislation are often misunderstood. The requirement to retain a 10% holdback does not arise by contract, but by virtue of the Builders Lien Act.
The purpose of a holdback is to provide security for contractors and subcontractors who supply labour and materials to a construction project. It also provides to limit the liability of owners who have hired and paid a general contractor against liens filed by subcontractors further down the contractual chain. The holdback provisions limit the liability of those who retain the holdback in the event that someone further down the chain files a claim of lien.
It is important to note that a builders’ lien holdback is not to be used as a deficiency holdback or as compensation for delays or other claims respecting the work performed on the project. Those types of holdbacks are often written into contracts, but they are separate from builders lien holdbacks.
The Act requires everyone in the contractual chain, starting from the project owner, to retain a 10% holdback from all amounts paid in respect of work done on a construction project. It does not matter whether the contract itself allows for such a holdback; the requirement to retain a holdback arises out of the legislation.