What is a holdback in real estate?
A holdback is a percentage of closing funds (typically 10 percent) withheld from the seller or contractor and released after a statutory holdback period or deficiency correction, as required under Ontario's Construction Lien Act.
In Ontario real estate transactions, a holdback is money retained from the closing proceeds and released only after specific conditions are met. Under the Construction Lien Act, builders and developers on new construction projects must hold back a percentage of funds (usually 10 percent of the contract price) to protect against liens filed by unpaid workers or suppliers. This statutory holdback period typically lasts 45 days after substantial completion.
The holdback serves as a financial guarantee that the project is free of construction liens and that any remaining defects will be corrected. Buyers benefit from this protection because it ensures the property can be registered without title complications and gives the builder time to remedy any outstanding work. The held funds are usually placed in trust with a lawyer or real estate agent until the holdback period expires and a statutory declaration confirming no liens have been filed is provided.
Beyond statutory requirements, negotiated holdbacks may also appear in agreements between buyers and sellers to cover incomplete work, warranty issues, or outstanding closing items. When buying new construction condos or homes in London, Ontario, buyers should expect holdbacks as a standard protection mechanism rather than an unusual cost.