BC’s holdback rules apply to virtually all contracts for the improvement of land in the province, from residential renovations to large commercial developments. The 10% rate has remained unchanged since the Act came into force in February 1998. If you are an owner, general contractor, or subcontractor on a BC construction project, the holdback obligation applies to you automatically by law, whether or not your contract mentions it. Speak with a BC construction lien lawyer if you have questions about your holdback obligations or rights.
What Is the Holdback Under the Builders Lien Act in BC?
The holdback is the percentage of each payment that parties in a BC construction contract are legally required to withhold and hold in reserve. Under the Builders Lien Act, this retained amount forms the fund against which lien claimants can assert their rights if they are not paid for their work or materials.
The holdback obligation exists because construction projects involve layered chains of contracts. An owner contracts with a general contractor, who contracts with subcontractors, who contract with sub-trades and suppliers. Any party in that chain can perform work and fail to receive payment. The holdback fund ensures that unpaid parties have a tangible financial resource to attach to, even after the owner has paid the general contractor in full.
The holdback is not a voluntary retention or a contractual negotiation point. It is a statutory requirement that arises the moment a contract for the improvement of land is formed and payments begin. The obligation exists regardless of whether the parties know about the Act, regardless of whether the contract references holdback, and regardless of whether the project goes smoothly.
The full text of the legislation is available directly from BC Laws: Builders Lien Act, SBC 1997, c. 45.
From Whom Must the Holdback be Retained?
The Builders Lien Holdback must be retained from every contractor or subcontractor who provides work or supplies materials to an improvement in BC.
It does not matter whether the contractor or material supplier is based in BC or outside BC: as long as the work or material is supplied to an improvement in BC, the holdback must be retained. An improvement can be thought of as any construction project, whether that is new construction, or repairs. For example, the Holdback regime applies to all emergency repair work.
Importantly, the Builders Lien Act applies to service providers just as well as physical workers where they do work in relation to an improvement. This means that the Holdback must often be retained from engineers and construction managers. This also means that engineers and construction managers have lien rights under the Act.
As noted above, individual workers who are not contractors (e.g. they do not bring their own tools) are not included, and the holdback should not be retained from them.
How Much Holdback Is Required in BC?
The Builders Lien Act requires a minimum holdback of 10% of the value of work done and materials supplied under each payment. This rate is statutory and applies to every progress payment made under any construction contract in BC, from the owner down through the entire contract chain.
The 10% calculation applies to the greater of: (a) the actual value of the work or materials provided under the contract during the payment period, or (b) the amount of the payment made on account of the contract price. This means the holdback base cannot be artificially deflated by understating the value of work performed.
For example: if a general contractor invoices an owner for $200,000 worth of work completed in a given month, the owner retains $20,000 as holdback and pays $180,000. That $20,000 sits in reserve until the conditions for release are met. The same rule applies one level down: if the general contractor pays a plumbing subcontractor $60,000 for a completed phase, the general contractor retains $6,000 as holdback against that subcontract.
One important distinction: holdback is not retained from workers’ wages. The Act does not require an employer to withhold 10% of a worker’s pay. The holdback obligation applies to contract payments, not employment income. Workers are protected through the lien regime in a different way: they can file a builders lien for unpaid wages directly.
Who Must Retain Holdback in BC?
The holdback obligation runs through the entire construction contract chain. The owner retains holdback from the general contractor, the general contractor retains holdback from each subcontractor, and subcontractors retain holdback from their own sub-trades. The obligation is independent at every level.
“Owner” under the Builders Lien Act is defined broadly. It includes anyone who has a legal or beneficial interest in land and who, with their knowledge or consent, allows an improvement to be made on that land. This covers individual homeowners undertaking renovations, property developers, corporations, municipalities, and strata corporations overseeing shared-property construction or repair.
A general contractor who holds a direct contract with the owner retains holdback from every subcontractor who performs work under that contract. If the general contractor has five subcontractors, they must retain holdback from each of them independently. Subcontractors, in turn, retain holdback from their own sub-trades and the parties they contract with below them.
To understand who qualifies as a lien claimant at each level of a BC construction project, see the complete guide to filing a builders lien in BC.
When Can Holdback Be Released in BC?
Holdback in BC can be released only after the lien holdback period has expired and no liens have been registered against the property title. The holdback period runs for 45 days from the date recorded in the certificate of substantial completion.
Before releasing holdback, the party holding it must confirm that the property title is clear of lien registrations. This requires a formal title search through the Land Title and Survey Authority of British Columbia (LTSA). A title search conducted at the 45-day mark confirms whether any liens have been filed against the property during the holdback period.
If the title is clear at day 55, holdback release is lawful. If a lien has been registered on title, the holdback cannot be released until the lien is discharged, vacated by court order, or otherwise resolved. Releasing holdback while a lien is registered exposes the releasing party to direct liability for the liened amount.
The release sequence is specific and non-optional: certificate of substantial completion is issued, the 45-day window opens, title is searched at day 55, holdback is released if title is clear. Every step matters. If a lien has been registered and you need to remove it before release, the process is covered in full at how to remove a lien in BC.
What Is Substantial Completion and Why Does It Matter?
Substantial completion under the Builders Lien Act occurs when the improvement or a substantial part of it is ready for use or is being used for its intended purpose. The date of substantial completion should be recorded in a certificate signed by the owner and contractor, and that date triggers the 45-day holdback period.
Substantial completion is not the same as total completion. A building can reach substantial completion before all minor deficiencies are corrected, before final inspections are obtained, or before finishing work is done. What matters is that the work is ready for its intended use. A commercial tenant space that is open for business may be substantially complete, even if touch-up painting or hardware installation remains outstanding.
The certificate of substantial completion creates a formal, documented start date for the holdback clock. Both the owner and the general contractor sign it. This record matters: if the certificate date is later disputed, the signed document determines when the 45-day period began and, by extension, when holdback can lawfully be released.
Unfortunately in many projects, the parties do not issue a certificate of completion often due to lack of knowledge about the requirement. In such cases, the holdback clock starts to run when the amount of work left to do is minimal. The Builders Lien Act sets out a formula to determine when that minimal threshold is met: a project is substantially complete when it can be totally completed (or corrected) at a cost of not more than:
(a) 3% of the first $500,000 of the contract price,
(b) 2% of the next $500,000 of the contract price, and
(c) 1% of the balance of the contract price.
This is sometimes called the “3-2-1 rule”. It can often be a point of contention as to how much it will cost to complete or correct the work, which can result in construction disputes and litigation. To avoid this, the best practice is for a certificate of completion to be issued in respect of the work.
When a substantial completion date is contested, the consequences ripple through both lien filing rights and holdback release timing. The rules governing lien expiry and enforcement deadlines in BC are covered in detail at lien expiry and enforcement deadlines BC.
Can Holdback Requirements Be Reduced or Waived in BC?
The 10% holdback minimum is a statutory requirement and cannot be reduced or waived by contract. Any agreement between an owner and contractor to retain less than 10% is void under the Builders Lien Act. The holdback exists to protect lien claimants throughout the entire contract chain, and the parties above them cannot contractually remove that protection.
This protection is intentional. A general contractor and owner cannot agree to a 5% holdback between themselves, because doing so would reduce the fund available to subcontractors, sub-trades, and suppliers who have independent lien rights against that holdback. The Act places the interests of all potential lien claimants above the preferences of the parties at the top of the contract chain.
There is one limited exception: partial holdback release. When a distinct and separable portion of a construction project reaches substantial completion, holdback for that portion may be released after the lien period for that portion expires and the title is confirmed clear. This requires the work to be genuinely separable, the completion to be documented, and the title to be checked. Partial release does not apply to work that is integrated into the broader project structure.
Having said all of this, we are occasionally asked to draft contracts which do contract out of the holdback. Special provisions must be made to deal with the consequences of possible lien filings when such contracts are used.
What Happens If Holdback Is Not Retained?
An owner who fails to retain the required 10% holdback loses the statutory protections of the Builders Lien Act and becomes personally liable to lien claimants for the amounts that should have been withheld. The risk is paying twice: once to the general contractor, and again to unpaid subcontractors and suppliers who file liens against the property.
The “pay twice” scenario is the most significant consequence of holdback non-compliance. If an owner pays the full contract amount to a general contractor without retaining holdback, and that general contractor fails to pay its subcontractors, those subcontractors retain their lien rights against the property. Because no holdback fund exists to satisfy their claims, the owner has no statutory protection. The owner may be required to pay the liened amounts directly, on top of what was already paid to the general contractor.
The obligation to retain holdback arises automatically from the moment a construction contract is formed and payments begin. The Act does not require the parties to reference holdback in their contract for the obligation to apply. Ignorance of the Act is not a defence.
Contractors who fail to retain holdback from their subcontractors face the same exposure in their tier of the chain. Alongside the holdback obligation, the Act also creates statutory trust obligations on payments received for a construction project. Those trust obligations are a related but distinct mechanism, covered in construction trust claims in BC.
How the Holdback Protects Lien Claimants in BC
The holdback is the primary financial backstop for contractors, subcontractors, workers, and suppliers who perform BC construction work and are not paid. It creates a protected fund that lien claimants can attach to, separate from the general contractor’s general assets and separate from the full value of the property.
For an unpaid subcontractor or supplier, the holdback fund represents the most direct path to recovery. Rather than pursuing a judgment against a potentially insolvent general contractor, a lien claimant can attach their claim to the holdback fund held by the owner. That fund exists specifically to compensate unpaid parties on the project and is protected from the general contractor’s creditors.
This protection only works if holdback was actually retained. When holdback was never withheld, or was prematurely released, lien claimants face a more difficult path. They may still have rights through trust claims, a lien against the holdback (the so-called “Shimco Lien”) personal liability claims against the party who failed to hold, or direct litigation, but those remedies are more costly and less certain than a claim against a properly maintained holdback fund.
If you are on either side of a holdback dispute, whether as an owner defending a lien claim or as a contractor or subcontractor pursuing payment, getting legal advice before the holdback period closes protects your position. ATAC LAW’s construction lawyers advise owners, contractors, and subcontractors across British Columbia on lien rights, holdback obligations, and construction payment recovery.
Frequently Asked Questions: Builders Lien Holdback in BC
When can holdback be released under the Builders Lien Act in BC?
Holdback in BC can be released after the lien holdback period expires, which is 55 days from the date recorded in the certificate of substantial completion. Before releasing, the party holding the funds must conduct a title search through the LTSA to confirm no liens have been registered on the property. If the title is clear at day 55, release is lawful. If any lien is on title, holdback cannot and should not be released until that lien is discharged or vacated.
Does the 10% holdback requirement apply to residential projects in BC?
Yes. The Builders Lien Act applies to all contracts for the improvement of land in BC, including residential renovation and new home construction. A homeowner who contracts with a general contractor to renovate their home is an “owner” under the Act and is required to retain 10% of each payment as holdback. The residential/commercial distinction does not change the holdback obligation.
What happens if a general contractor does not retain holdback from a subcontractor?
A general contractor who fails to retain holdback from a subcontractor loses the protections the Act would otherwise provide and becomes liable to lien claimants for the amounts that should have been withheld. If the subcontractor goes unpaid and files a lien, the general contractor cannot point to a holdback fund as the source of payment. The general contractor faces direct financial exposure for the full unpaid amount. Failure to retain holdback also creates potential trust claim liability under the Act.
Can holdback be released in stages before full project completion in BC?
Yes, in limited circumstances. The Builders Lien Act permits partial holdback release when a genuinely separable portion of a project reaches substantial completion, the lien period for that portion has expired, and a title search confirms no liens are registered for that portion. The work must be truly separable and distinct, not merely a completed phase of integrated construction. Partial release does not apply to work that forms part of a continuous improvement where interdependencies exist between phases.
When and where does the Holdback not apply in BC?
There are a number of unique circumstances in which the Builders Lien Act, or parts thereof, have no applicability to projects in BC. One of them is where the lands are not registered in the Land Titles Office. This is often the case with crown lands and aboriginal lands, and sometimes leasehold lands. Another circumstance where builders liens do not apply is when work is done in relation to public roadworks. Yet another circumstance is any work done in relation to federal works, including airports, railways, and interprovincial works like pipelines. This means that contractors should be very careful when working under these circumstances to ensure that their rights are protected in the event of non-payment by using the correct provisions in their contracts.
