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A construction holdback is the portion of each progress-draw payment that a lender withholds during a construction mortgage, in an amount and for a period set by provincial construction or builders’ lien legislation, to protect the property against unpaid subtrades and suppliers registering a lien.
Under provincial construction or builders’ lien legislation, a subtrade or supplier who isn't paid for work on a project can register a lien against the property within a set period after the work is substantially completed. The holdback exists so there's money still sitting with the lender or lawyer if that happens, rather than the full draw already being in the builder's hands.
Both the size of the holdback and the length of the lien period are set out in each province's own construction or builders’ lien statute and vary from province to province, so the applicable rules for the job site — not a rule of thumb — are what actually govern a given file. The holdback is calculated on every progress draw during the build, not just released or withheld from the final advance.
Purpose: the holdback protects the property, and the lender's security in it, from a construction lien registered by an unpaid subtrade or supplier.
Set provincially: the holdback percentage and the lien registration period are both fixed by each province's own construction or builders’ lien legislation and differ by province — confirm the statute that applies to the job site.
Released after the lien period: the lender or lawyer typically releases the holdback only once the applicable lien period has passed with no lien registered.
Applies draw by draw: the holdback is calculated on each progress draw throughout the build, not only on the final advance.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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