The 10 Percent You Are Legally Required to Hold Back on a BC Renovation

The risk the holdback exists to solve

Start with the situation the whole system is built around, because once you see it the rest follows.

You hire a general contractor. The contractor hires a framer, an electrician, a plumber, and buys materials from a supplier. You pay the contractor in full, on time, every invoice. The contractor then fails to pay the electrician.

The electrician can file a claim of lien against your title. Not against the contractor's assets. Against the house you own and paid for. You did nothing wrong and you are still the one with a claim registered on your property.

That is the exposure. The holdback is the mechanism the Act uses to cap it. By requiring you to keep 10 percent of the money back for a defined period, the law gives unpaid subcontractors and suppliers a pool to claim against, and gives you a defined ceiling on what a lien can realistically cost you if you follow the process. Pay out everything early and you have handed away your own protection while the risk stays exactly where it was.

A lien on title is also a practical problem long after the renovation is finished. It clouds title, which shows up when you sell or refinance, and lenders and buyers both care about it.

What section 4 actually requires

The wording matters here, so it is worth quoting. Section 4(1) says the person primarily liable on each contract, and the person primarily liable on each subcontract, under which a lien may arise must retain a holdback equal to 10 percent of the greater of the value of the work or material as actually provided, and the amount of any payment made on account of the contract price.

Two things in that sentence get missed. First, the obligation runs down the chain. You hold back from your general contractor, and your general contractor holds back from each subcontractor, on each subcontract. Second, the 10 percent is measured against whichever is larger, the value of work actually done or the amount you have paid. If you pay ahead of the work, the holdback is calculated on the larger payment figure.

Section 4(2) closes the obvious loophole. The requirement applies whether or not the contract provides for periodic payments or payment on completion. A single lump sum at the end does not exempt you.

And there is a limit on who you hold back from. Section 4(6) states that a holdback must not be retained from a worker, material supplier, architect or engineer. So the 10 percent comes off what you pay your contractor, and off what the contractor pays subcontractors. It does not come off the architect's invoice or a supplier's invoice.

• 10 percent of the greater of the value of work provided, or the amount paid
• Applies to the head contract and to every subcontract below it
• Applies whether payments are periodic or a single payment on completion
• Not retained from a worker, material supplier, architect or engineer

The holdback account most residential jobs skip

Section 5(1) goes further than most people expect. It requires the owner to establish a holdback account at a savings institution for each contract, to pay the holdback into that account, and to administer the holdback account together with the contractor.

So the Act does not describe the holdback as an amount you simply decline to send. It describes money that leaves your hands, sits in a named account, and is jointly administered.

On the projects we run, this is the single provision homeowners have never heard of, and in our experience it is widely ignored on smaller residential jobs. Both sides treat the holdback as a line the owner deducts from each invoice and keeps in their own chequing account. That is an observation about common practice on the North Shore. What the Act permits is a separate question for a lawyer.

If you want to follow the section as written, raise the account at contract signing rather than at the first invoice. It is a straightforward conversation before work starts and an awkward one halfway through a kitchen tear-out.

What completed means, and who decides

Both deadlines in this system are triggered by completion, so completion needs a definition, and the Act supplies one that surprises people. Section 1 defines completed as substantially completed or performed, not necessarily totally completed or performed.

In plain terms, the clocks can start while a punch list is still open. Waiting for the last cabinet pull to arrive does not hold the deadline back.

The formal trigger is a certificate of completion. Section 7(3) says that on the request of a contractor or subcontractor, the payment certifier must, within 10 days after the date of the request, determine whether the contract or subcontract has been completed, and if it has, issue a certificate of completion.

Section 7(4) then requires that once a certificate is issued, the payment certifier must within 7 days deliver a copy to the owner, to the head contractor if there is one, and to whoever requested it, and post a notice of certification of completion in a prominent place on the improvement.

That posting requirement is doing real work. It is how a subcontractor who never speaks to you finds out the clock has started on their right to file. If you see a notice posted on your own job site, do not take it down. It is part of the legal process, and your file should record the date it went up.

The two clocks: 45 days and 55 days

This is the part worth understanding properly, because it explains why the numbers are what they are.

Section 20(1) sets the filing window. Where a certificate of completion has been issued for a contract or subcontract, claims of lien by the contractor or subcontractor, and by any persons engaged by or under them, may be filed no later than 45 days after the date the certificate was issued. Section 20(2) covers the case with no certificate: 45 days after the head contract has been completed, abandoned or terminated if you engaged a head contractor, or 45 days after the improvement has been completed or abandoned if there is no head contract.

Section 22 gives that deadline its teeth. A lien for which a claim is not filed in the manner and within the time provided in the Act is extinguished. Miss the window and the lien right is gone.

Section 8 sets the holdback period on the same trigger. Where a certificate of completion is issued, the holdback period expires at the end of 55 days after the certificate is issued. Where there is no certificate, it expires 55 days after the head contract is completed, abandoned or terminated, or 55 days after the improvement is completed or abandoned.

Both clocks start at the same moment. One runs 45 days, the other 55. The 10 day difference is your working margin: the filing window has closed, so you can check title knowing no new lien can appear behind you, and only then release the money.

Releasing the money, and the one condition on it

Section 8(4) is the release rule. Payment of a holdback required to be retained under section 4 may be made after expiry of the holdback period, and all liens of the person paid are then discharged, unless in the meantime a claim of lien is filed by one of those persons, or proceedings are commenced to enforce a lien against the holdback.

Read the exception carefully, because it is the reason the title search in the 10 day gap is not optional. The discharge only follows if nothing was filed and no enforcement proceedings were started. Paying out without checking means you are relying on an assumption instead of a search.

There is one more provision worth knowing if your contractor asks for part of the holdback earlier than you expected. Section 9(1) lets a contractor collect a subcontractor's share of the holdback early, once that subcontract has its own certificate of completion and its own 55 days have passed without a lien. So an early request is not automatically improper, and it is also not automatic. It attaches to a specific subcontract that has cleared its own clock.

If your contract does not spell out how the holdback is calculated, where it is held, and when it is released, that is worth fixing before signing rather than arguing about at the end.

How to run this on a real renovation

None of this is difficult, but it does require someone to keep dates. On the projects we manage, the holdback file is a short list that lives beside the contract.

The habit that prevents most trouble is writing the trigger date down the day it happens, rather than reconstructing it in month three from memory and emails. Every deadline in this system counts forward from that one date.

• Agree in writing, before work starts, how the 10 percent is calculated and where it is held
• Deduct the holdback from every progress payment to the contractor, because section 4(2) applies to periodic payments too
• Do not deduct it from an architect, engineer, worker or material supplier invoice
• Record the date a certificate of completion is issued, and keep the posted notice
• Search title after day 45 and before releasing at day 55
• Keep the title search result and the release payment record with the contract file