Has your project been completed, but the owner is still keeping your final payment? Are they pointing to issues that have never been raised before, or have they stopped responding altogether?
If this sounds familiar, you may be wondering whether it’s legal for owners to withhold your payment.
In BC, a construction holdback protects contractors and suppliers by creating a fund against which lien claims may be made. To put it simply, owners must set aside a 10% holdback payment from amounts owed during a project.
That said, the holdback isn’t intended to be used as leverage to pressure you into waiting indefinitely for payment.
In this guide, we explain how the BC 10% construction holdback works. Below, you’ll learn what you can do when owners wrongfully withhold your payment.
Understanding the 10% Holdback Under the Builders’ Lien Act
A holdback is the portion of the contract price that an owner temporarily retains during a construction project.
In British Columbia, holdbacks are usually set at 10% of the cost of the supplies and labour. This retained amount, also known as the Builders’ Lien Holdback, safeguards suppliers, contractors, and other lien claimants.
The 10% holdback under the Builders’ Lien Act ensures a fair balance between the interests of all parties involved in the project. Eligible parties can access the holdback funds if they need to enforce their lien rights.
Similarly, owners can retain a specified amount until certain legal conditions are fulfilled.
The Legal Basis for Holdbacks in B.C.
The process of retaining a holdback isn’t just a construction practice. It’s a legal obligation under the British Columbia Builders Lien Act.
The Act offers various methods to assist those who work on and supply an improvement, helping to ensure everyone gets paid.
Below are a few concepts under the Builders’ Lien Act.
• Property Claims (Lien): If an owner doesn’t pay for work or materials, the unpaid party can place a legal claim on the property’s title. This stops the property from being sold. Or, in some cases, the claimant can even force the sale of a property to recover their money.
• Statutory Holdbacks: The Act requires the property owner or main contractor to keep 10% of each payment made on the project. They must set this money aside to ensure subcontractors and suppliers have a secure source of payment.
• Statutory Trusts: Statutory trusts create a legal trust over certain construction funds. Those who receive project funds hold them in trust and must use them to pay the workers and suppliers who earned them.
Who Must Retain the Holdback and From Whom
In general, the property owner or the primary contractor is in charge of retaining the 10% construction holdback.
This can then be used to pay the following people:
• Subcontractors hired by the main contractor
• Workers who are providing direct physical labour
• Architects and engineers who are providing their services
• Suppliers who are providing the materials and goods used on the property
When Does the 10% Holdback Become Payable?
It can be frustrating when your work is done, but the owner has yet to release the holdback.
Under the Builders’ Lien Act, the construction holdback isn’t meant to be kept for an indefinite amount of time. Instead, it becomes payable within a set period after the contractor fulfills certain obligations.
The timing for when the construction holdback must be paid is connected to a period known as the Lien Filing Period. This is a specific timeline during which you can register a builder’s lien if you haven’t been paid for your work.
Once the lien filing period has ended and there are no outstanding liens, the owner should release the holdback payment.
The 45-Day Lien Filing Period and the 55-Day Holdback
Two separate timelines are often confused here, and it is important to keep them apart:
• Lien filing deadline: 45 days. A claim of lien must be filed no later than 45 days after the triggering event. Once that 45-day window closes, you can no longer file a new lien.
• Holdback release: 55 days. The owner must retain the holdback until 55 days after the triggering event. Once that period ends, and provided no lien was filed within the 45-day window and no lawsuit has been commenced, the owner must release the holdback.
In short, your deadline to protect your rights by filing a lien (45 days) falls earlier than the date the holdback is released (55 days). Missing the 45-day filing deadline can mean losing your lien rights entirely.
If the owner continues to keep the holdback after the release date without a valid reason, it can be considered improper withholding.
What Triggers the Release Timeline
The lien and holdback periods begin when one of the following events occurs.
• Substantial Performance or Contract Completion: The period may start when work is finished enough that the project can be used for its intended purpose. It can be triggered even when there are still minor unfinished works.
• Abandonment of the Contract: If the project stops, the period can begin due to abandonment.
• Completion of a Major Portion of Work: For larger projects, different parts of the work may reach completion at different times. In this case, the clock can begin on specific portions based on your contract.
When Is Withholding a Holdback Considered Wrongful?
In general, a holdback is wrongful if the owner hasn’t released payment, even if the lien period has expired and there are no outstanding claims.
However, not every delay in payment is considered wrongful. There are valid reasons why an owner may hold payment under the Builders’ Lien Act, BC.
Legitimate Reasons an Owner May Delay Release
Owners may delay the release of the construction holdback in the following cases.
• The 55-day holdback period hasn’t expired.
• There are serious deficiencies that the contractor has failed to address.
• The contractor failed to submit turnover documents, such as warranties or certifications.
• Funds may also be frozen if there are active disputes in the Supreme Court of British Columbia.
Common Tactics Owners Use to Avoid Paying
In some cases, owners may use the holdback as an excuse to avoid making the final payment. Common tactics include the following.
• The owner raises new deficiencies at the last minute or even after the work has been completed.
• The owner may use the holdback to pressure the contractor to accept less payment than they deserve.
• The owner may tell you the payment is being processed, which can extend for weeks or months.
The Difference Between a Payment Dispute and Bad-Faith Withholding
When should you be concerned that an owner is acting in bad faith?
If there’s a genuine disagreement about the work, then you may be dealing with a legitimate payment dispute. This concerns disagreements that arose during construction.
On the other hand, if the owner continues to hold payment even after you have met the legal requirements, it may be bad-faith withholding. In this case, you may wish to seek legal advice.
The Financial Impact of Wrongful Holdback Withholding
Construction projects rely on a steady cash flow. Unfortunately, even a small delay in payment can have a chain reaction and affect everyone involved with the project.
Cash Flow Consequences Throughout the Construction Chain
Owners who wrongfully withhold a holdback payment expose themselves to legal action.
Contractors and subcontractors may file a builders’ lien to recover the unpaid amount. When this happens, owners may be ordered to pay interest, legal costs, and damages on top of the original amount owed.
How Wrongful Withholding Affects Subtrades and Suppliers
The wrongful withholding of the 10% construction holdback may also lead to the following.
• Contractors may not have enough funds to pay their subcontractors on time.
• A delayed construction holdback can make it difficult to purchase materials or rent equipment.
• Late payments can strain business relationships.
Legal Remedies Available to Contractors and Subcontractors
If an owner continues to illegally withhold your payment, here are your options.
1. Filing a Builders’ Lien
First, you may file a property claim under the Builders’ Lien Act of British Columbia. Note that it’s important to act quickly, as there’s a strict time limit for filing a lien.
2. Claiming Against the Holdback Fund
The rules for filing can be strict, and we recommend seeking legal advice as soon as possible. Once you’ve properly filed a builders’ lien, you can then use the holdback fund for all or part of your claim.
3. Commencing a Court Action
Sometimes a builder’s lien isn’t enough to recover all the money you’re owed. When this happens, you may use court action to enforce your legal rights.
4. Recovering Interest and Damages for Wrongful Withholding
Depending on the situation, you may also be able to claim interest on overdue payments. A construction lawyer can help you evaluate which legal remedies apply.
How Contractors and Subcontractors Can Protect Their Rights
Here are a few tips that can help contractors and subcontractors protect their rights.
1. Providing Proper Notice Under the Builders’ Lien Act
Be sure to give all notices required by the Builders’ Lien Act. You must be vigilant so you can enforce your rights.
2. Documenting Completion and Substantial Performance
Always document your project once you complete it. Don’t forget to give the owner a copy of the completion certificate as well.
3. Preserving Builders’ Lien Rights Within Required Deadlines
Filing for property liens in BC is a time-sensitive matter. Liens may only be filed no later than 45 days after the certificate of completion’s issue date.
Acting as soon as possible is crucial for meeting the strict deadlines. Otherwise, you may lose your chance to recover your money.
What Owners Need to Understand About Their Holdback Obligations
For owners, understanding your obligations can help you avoid any disputes down the line.
The Statutory Duty to Retain the Holdback
In British Columbia, owners are generally required to hold 10% of the cost of labour and materials. You must then create a trust fund from which contractors and subcontractors may make lien claims.
As an owner, it’s your duty to retain the required amount throughout the holdback period.
Liability Risks for Improper Holdback Release
According to the Builders’ Lien Act, you must retain the holdback for 55 days. If you release the payment too early, you may still be responsible for satisfying lien claims, even if you’ve paid the holdback.
In short, releasing payment before the holdback period has expired can be a liability.
How Harbourview Law Supports You
If your construction holdback has been wrongfully withheld, you don’t have to file the builders’ lien on your own. The whole process can quickly turn complicated, and you risk missing important deadlines.
Harbourview Law specializes in these situations. With over two decades of experience, Harbourview Law offers practical solutions for builders in BC.
So, if you need assistance with the 10% construction holdback, please don’t hesitate to reach out. Harbourview Law is here to help you preserve your lien rights.
If you’re ready to discuss your case, you may book a consultation here.