Construction holdback

Construction lien legislation in most provinces requires a portion of payment on a construction contract to be held back for a set period after substantial completion, giving subcontractors and suppliers who haven’t been paid time to register a lien. Ontario’s Construction Act sets its own holdback percentage and lien period, and other provinces run comparable but not identical regimes under their own builders lien legislation.

Why this matters when buying a construction business

• Unreleased holdbacks the seller is owed from customers are an asset, but not cash the buyer can necessarily count on collecting quickly.
• Holdbacks the seller owes to its own subcontractors are a liability that typically needs to be identified and allocated in the deal.
• Releasing a holdback in Ontario often requires confirming there is no outstanding workers’ compensation liability tied to the project, since clearance is commonly checked before funds are released.

Where it shows up in diligence

Buyers of construction and trades businesses generally review open contracts to map out what holdbacks are owed, what is owed to subcontractors, and when each is expected to be released, since these amounts can be significant relative to the size of the deal.