Statutory Holdbacks under the Construction Lien Act are a Must
There are actually three separate holdbacks that impose liability upon homeowners:
1. basic holdback,
2. finishing holdback, and
3. notice holdback.
Many homeowners are now aware of the 10% requirement. This is the obligation to holdback the sum of 10% of every payment made in respect to an improvement made to the property for a period of 45 days.
That is the basic holdback. Every contract is deemed to be amended so as to permit such holdback to be retained. If an owner or payor fails to retain such amount, then there is personal liability imposed under the Construction Lien Act to “pay it again”.
You will appreciate that many contracts seem to go on forever. There’s almost always one small thing that never gets done.
So, the Act contains special provisions to speed up payment of the holdbacks. Once the point of “substantial completion” has been reached, that’s the trigger for the end of the 45 day period. And, because there still may be work yet to do, there’s a new time period which starts with substantial completion and runs to total completion, and then naturally, 45 days after that. The final finishing work is subject to the 10% finishing holdback, while the initial holdback amounts were released upon expiration of the 45 day period after substantial completion.
The term “substantial completion” under the Construction Lien Act is a defined term which basically means (in respect to contracts under $500,000.00):
1. when the improvement is being used, or is ready for use for the purposes for which it was intended, and
2. the cost of completion, or correcting a known defect is less than 3% of the contract price.
So, homeowners should be careful. There is a risk associated with the basic and the notice holdbacks.
The basic holdback does not require any notice.
The notice holdback is just something in writing. It does not require registration of a lien.
Once there is a notice from one subcontractor, then there may very well be others. This is the time to retain legal counsel. It would be wise to speak with a lawyer or solicitor who practices in the field of real estate or civil litigation involving construction liens.
Brian Madigan LL.B., Broker