Encyclopedia
Holdback
Money held back from a payment, such as a contractor's payment under the Builders Lien Act or part of a business price pending conditions.
For example: A buyer of a business agrees to a holdback until the Provincial Sales Tax (PST) clearance certificate arrives. (Illustration only, not a real deal.)
Official source: Builders Lien Act (BC Laws)
Example only, not a real client. Say you are buying a building and the inspection shows the roof needs work the seller has not finished. We agree that part of the price is held back at closing and released once the roof is done, so you are not left paying for the seller’s repair.
What I’d tell a friend
A holdback can solve a problem found late in a deal. Make the conditions for releasing it clear and in writing.
Why it matters to you
Holding back part of construction payments protects owners against builders' liens. Paying too soon can mean paying twice.
How to use it in your deal
Owners and tenants paying for construction should understand holdback rules, keep a separate holdback account if required, and release funds only after the lien period ends and no liens are filed. Paying the full amount too early can leave you exposed if subcontractors file liens.
Tenants doing their own improvements should know that liens can be filed against the landlord's property, so many leases require tenants to remove liens quickly. Buyers should check for recent construction and liens on title. Contractors should know when holdback is due. Get legal advice for large projects, since the rules are technical.
The term holdback is also used in purchase deals, where part of the price is held back to cover adjustments, tax clearances or warranty claims; that holdback is set by the contract, not the Act. The province publishes a plain guide to the Act, which is a good place to start. Mark the release dates in your calendar the day the contract is signed.
Mistakes I see
Releasing holdback early. Not tracking completion. Ignoring liens.
In BC and Vancouver
The Builders Lien Act sets holdback requirements.
Official sources: Builders Lien Act (BC Laws)
Holdbacks in a purchase
In a sale, a holdback is part of the price kept back at closing, usually by a lawyer, until something is done, such as a repair, a document being delivered or a tax clearance.
The agreement should say exactly what must happen, by when and what happens to the money if it does not.
Holdbacks in construction
In construction, owners in BC may need to keep back part of each payment for a period to protect against liens. That is a different use of the word.
Ask your lawyer which kind applies and how the release works in your situation.
Questions to ask before you sign
- How much is held back?
- When is the work complete?
- Have liens been filed?
- When can funds be released?
Keep reading
Related terms: Builders' lien, PST clearance certificate
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.