Introduction
In the world of construction law, one of the most important yet often misunderstood mechanisms is the construction holdback. Governed by British Columbia’s Builders Lien Act, the holdback system is designed to provide financial protection to contractors, subcontractors, workers, and suppliers while ensuring that owners are not left exposed to double payment or unpaid claims. Whether you are a general contractor, subcontractor, or property owner, understanding how holdbacks work is essential to protecting your legal and financial interests.
At Pathfinder Law, our team supports clients through every stage of construction—drafting contracts, advising on lien rights, and resolving disputes related to holdbacks and non-payment. In this blog, we break down the holdback rules in BC and answer the most common questions about how they impact construction projects.
What Is a Holdback in Construction?
A holdback is a mandatory amount of money (usually 10% of the contract price) that must be withheld by an owner or contractor during a construction project. This amount is held for a specific period of time to allow subcontractors, suppliers, and workers to file a builders lien if they are not paid for their work or materials. The concept is simple: it provides a financial reserve that can be used to resolve claims without putting the rest of the project at risk.
In BC, the legal requirement for holdbacks is set out under the Builders Lien Act, which applies to most construction and renovation projects in the province. The Act is designed to strike a balance between ensuring fair payment for work done and preventing excessive legal disputes on construction sites.
Who Is Required to Withhold the Holdback?
Under the Builders Lien Act, any person who contracts for work, whether they are a property owner, general contractor, or subcontractor, is required to withhold the statutory holdback. Here’s how it generally breaks down:
- A property owner must withhold 10% from the contractor.
- A contractor must withhold 10% from their subcontractors.
- A subcontractor must withhold 10% from sub-subcontractors or material suppliers, if applicable.
Failure to properly withhold the 10% can leave a party financially liable for unpaid claims even if they’ve already paid the full contract price.
Why Are Holdbacks Important?
Holdbacks serve several important functions in construction projects:
- They protect workers and suppliers by ensuring there is money available to pay outstanding debts.
- They protect property owners from liens being registered against their land.
- They help manage risk by ensuring that money is only released once the lien period has expired and no claims have been made.
Essentially, holdbacks create a safety net that ensures fair payment and discourages legal disputes.
How Long Must the Holdback Be Held?
The holdback must be retained for 55 days after the earliest of the following:
- Substantial completion of the work.
- Abandonment or termination of the contract.
- Completion of the contract or subcontract.
This 55-day period is known as the lien filing period, during which contractors, subcontractors, and suppliers may file a lien if they haven’t been paid. Once the 55 days have passed and no liens have been registered, the holdback can safely be released.
If a lien is filed during the holdback period, the money must be retained until the lien is resolved, either by settlement, court order, or expiry.
What Happens If the Holdback Is Not Withheld?
Failure to properly withhold the statutory 10% can lead to significant consequences. The party responsible for the holdback may be held personally liable for any unpaid amounts owing to subcontractors or suppliers who file a lien. This can result in double payment, once to the contractor and again to the lienholder.
Additionally, improper handling of holdbacks can lead to legal disputes, construction delays, and complications with financing or selling the property. Courts in BC have consistently enforced the holdback provisions in favour of protecting workers and lien claimants.
Holdbacks and Multiple Subcontracts
It’s important to understand that each tier of the construction pyramid is responsible for its own holdbacks. This means a project may have multiple holdbacks at different levels:
- Owners hold back from contractors.
- Contractors hold back from subcontractors.
- Subcontractors hold back from their own suppliers or workers.
This cascading system ensures that everyone in the construction chain is protected. However, it also introduces complexity, especially on larger projects with many parties involved.
Releasing the Holdback: What Needs to Be Done?
Before releasing the holdback, the paying party should confirm:
- That the 55-day lien period has passed.
- That no liens have been filed against the property.
- That any certificate of completion (if applicable) has been issued.
It’s advisable to conduct a title search of the property to ensure that no liens have been registered. If no liens exist, the holdback funds can be released with confidence.
In cases where a lien is discovered, legal advice should be sought immediately. The holdback cannot be released until the lien is dealt with—either by payment, legal discharge, or court decision.
Exceptions and Special Cases
Certain types of projects may have exemptions or modified rules. For example:
- Homeowners doing small renovations on their primary residence may not be required to follow the full holdback process.
- Municipal projects or those involving Crown land may have different lien rights.
It’s critical to get legal advice on whether your project falls under any of these exceptions and how that affects your responsibilities.
How Pathfinder Law Can Help
At Pathfinder Law, we have extensive experience guiding clients through all aspects of construction law, including understanding and managing holdbacks. We assist:
- Property owners in ensuring compliance and avoiding liens.
- Contractors and subcontractors in protecting their payment rights.
- Suppliers and tradespeople in filing liens and enforcing claims when necessary.
Our team provides practical advice on how to structure contracts, issue notices, and navigate the Builders Lien Act. Whether you need help drafting lien-protected agreements or responding to a holdback dispute, we ensure your rights are fully protected.
Understanding holdbacks isn’t just a matter of compliance, it’s a key part of managing financial risk and ensuring your project runs smoothly. Contact Pathfinder Law today to learn more about how we can support your construction legal needs.
