Ontario’s Construction Act has undergone several significant updates in recent years. The most recent changes were introduced through the Building Ontario For You Act (Budget Measures), 2024 (Bill 216) and the Fighting Delays, Building Faster Act, 2025 (Bill 60). 

We consulted Caravel Law construction lawyer Mitch Mostyn to break down what these changes mean in practice and how owners, contractors, and subcontractors should prepare for the new regime. 

What Is a Holdback—and Why Does It Exist? 

The current holdback regime, like its predecessor, requires each payer under a contract or subcontract to hold back an amount equal to 10% of the price of the services or materials as they are supplied under the contract or subcontract. This holdback is sometimes referred to as the “basic holdback”.  

At its core, the holdback regime is intended to serve as a limited form of security for those down the chain who have supplied services or materials to an improvement under a contract or subcontract. 

In simple terms: a holdback is a built-in safety net. It ensures contractors, subcontractors, and suppliers down the project chain have security if they aren’t paid. 

While holdbacks are typically retained as cash, the Act allows alternative forms of security—if the parties agree—such as: 

• A prescribed letter of credit (Form 4) 

• A prescribed demand-worded holdback repayment bond (Form 5) 

• Any other prescribed form of security 

Subsection 22(1) of the Act sets out the basic holdback requirement as follows: 

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 in respect of the supplied services or materials have expired or been satisfied, discharged or otherwise provided for under this Act.

[Note: the underlined words were added under Bill 216] 

Statutory vs. Contractual Holdbacks 

The basic holdback is separate and apart from the holdback for finishing work required under subsection 22(2) of the Act (the finishing holdback). The payer’s obligation to retain the basic and finishing holdbacks applies irrespective of whether the contract or subcontract provides partial payments or payment on completion. 

The basic and finishing holdbacks are sometimes referred to as statutory holdbacks, which can be distinguished from, and are in addition to, any contractual holdbacks that the parties may agree to include in their contract or subcontract. Contractual holdbacks (known as retainage in the US) are not mandated or regulated under the Act. 

What’s New: Annual Holdback Payments Are Now Mandatory 

Historically, the Construction Act allowed for annual or phased release of holdbacks, but did not require it. In practice, most contracts included holdback release provisions, but there was no statutory obligation to pay holdbacks annually. 

As of January 1, 2026, that has changed. Annual payment of accrued basic holdbacks is now mandatory, subject to certain exceptions and transition rules. 

In practical terms: owners can no longer indefinitely retain basic holdbacks—there is now a statutory obligation to pay them out annually. 

How the Annual Holdback Payment Process Works 

The first step in this new holdback payment process is the mandatory publication by the owner of a notice of annual release of holdback. This notice must be in the prescribed form (a new Form 6) and must specify the amount of holdback that the owner intends to pay and the intended payment date.  

The amount to be paid is the accrued holdback in respect of services or materials supplied by the contractor during the year immediately preceding the anniversary of the date on which the contract was entered into. The accrued amount must be paid by the owner within the time period stipulated in subsection 26(4) of the Act, unless there is a lien in respect of the contract.  

If there is no lien, the owner must pay the holdback no earlier than 60 days and no later than 74 days after publishing the Notice of Annual Release of Holdback. 

Once the owner pays: 

• The contractor must pay its subcontractors within 14 days of receiving the holdback payment, unless there is a lien. 

• Subcontractors must, in turn, pay their subcontractors within 14 days of receiving payment, unless there is a lien. 

Money must now flow down the construction chain on a predictable timeline, rather than being locked up until project completion. 

The shift to mandatory annual holdback payments marks a meaningful change in how cash flows through Ontario construction projects. Owners will need to plan for predictable annual outflows, while contractors and subcontractors can expect greater certainty around when funds will be released. 

For all parties, these changes raise practical considerations around contract drafting, lien management, project administration, and financial planning. Existing contract templates and internal processes should be reviewed to ensure they align with the updated statutory framework and transition rules. 

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