Last Updated: September 03 2026
Is it illegal in Ontario to pay a construction final invoice in full without holding back 10%?
In Ontario, owners and contractors in construction or renovation projects generally must retain a statutory holdback of 10% until all lien rights against the holdback expire, so paying the final invoice in full without the holdback can be unlawful and may expose the payer to claims up the supply chain under the Construction Act, R.S.O. 1990, c. C.30, (ss. 22 and 23). Construction Act, R.S.O. 1990, c. C.30, (s. 22(3)) also says the holdback applies even if the contract says payment on completion. If you need help reviewing your contract, payment timing, and whether you must retain or release holdback funds, paralegals at Ajodhia Legal Services can help you protect your rights in Ontario—call (647) 882-8205.
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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 Ajodhia Legal Services by phone at: (647) 882-8205 to discuss any specific questions that you may have.
The Law
The Construction Act, R.S.O. 1990, c. 30, formerly known as the Construction Lien Act, statutorily requires the owner of a construction project or renovation project involving improvements to property, whether residential, commercial, industrial, agricultural, or other type, to holdback ten (10%) percent from payments due until the expiry of the time in which a lien may be preserved. 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 per the Construction Act, a ten (10%) percent holdback is required from each party involved within a property improvement project whether such is a construction project or a renovation project. This means that the property owner must withhold ten (10%) percent when paying the general contractor, who must then withhold ten (10%) percent when paying subcontractors, and so on throughout the various layers of payors within the labour and material supply chain of the project. The holdback requirement ends when the risk of a lien being filed against the improved property expires, which is usually sixty (60) days after the project is completed or a Certificate of Substantial Performance is issued.
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 significant volume of inquiries regarding “lawyers close to me” or “top lawyer in” typically signifies a desire for prompt, proficient legal assistance instead of a particular designation. In Ontario, “licensed paralegals” are governed by the same Law Society that regulates lawyers, and they have the authority to represent clients in specified litigation cases. Advocacy, legal assessment, and procedural expertise are fundamental to this function. Ajodhia Legal Services provides legal representation within its licensed parameters, focusing on strategic positioning, evidentiary preparation, and compelling advocacy designed to secure efficient and favourable outcomes for clients.
