Annual Release of Holdback under the Ontario Construction Act - 2026
As the industry prepares for a significant update to Ontario’s Construction Act, it’s essential for project owners, contractors, and consultants to understand how these changes will affect project cash flow and contract administration. The new mandatory annual release of holdback—effective January 1, 2026—introduces processes and timelines that all parties must be ready to implement.
In Ontario, the Construction Act, R.S.O. 1991, ch. C.30 applies to a property Owner and anyone who supplies services or materials to an improvement of the property. Under this Act and its predecessor (the Construction Lien Act), there is a requirement for the Owner to withhold 10% of any amounts to be paid to a contractor – the “holdback” – for the purpose of limiting the Owner’s liability for any liens that could be claimed against the property due to non-payment of subcontractors and suppliers of materials.
Until now, the holdback would be paid by the Owner to the Contractor after the lien preservation period has expired following the date of Substantial Performance of the work, provided no liens had been registered against the property as a result of the work.
Due to changes to the Construction Act that takes effect on 1st January 2026, it will now become mandatory for the Owner to release the accrued holdback after each annual anniversary of the date of execution of the construction contract, with the following milestones:
- Within 14 calendar days after the contract anniversary date, the Owner (not the Contractor) is required to publish a notice of annual release of holdback in one of three construction trade websites; the notice must use a prescribed form and include the amount of holdback to be released
- A 60-day lien preservation period runs from the time of posting of the Owner’s notice
- Provided no liens have been preserved, perfected or otherwise discharged against the property, the Owner must pay to the Contractor the amount of the holdback accrued during the year prior to the contract anniversary date. This payment must be made within 14 days of the end of the lien preservation period.
While these changes apply to new construction contracts which are executed on or after the 1st January 2026, transition rules will also apply to contracts that were created prior to this date:
- projects with a contract execution date prior to 1st January 2024 will commence the annual release on their next contract anniversary date after 1st January 2026
- projects with a contract execution date after 31st December 2023 and before 1st January 2026 will commence the annual release on the 2nd anniversary of their contract date after 1st January 2026.
There is no change with respect to requirements for Substantial Performance nor to the release of the remaining holdback after the date of Substantial Performance, including the release of finishing holdbacks.
The required notice for release of holdback (Form 6) to be prepared by the Owner will be found on the Ontario Courts forms website https://ontariocourtforms.on.ca/en/ under the “Construction Acts Forms” section.
As this is a significant change to the management of holdbacks and their payment compared to prior decades, it can be expected that there will be some confusion in the industry, for owners, designers, contractors, subcontractors and vendors, on how these new requirements function. It can also be expected that there could be some unintended impact leading up to achieving Substantial Performance and final completion of the work.