Holdback
Understand holdbacks in Canadian construction financing — what they are, how they work, and why they’re used.
July 29, 2025
What is a Holdback?
A holdback is a portion of construction financing or payment withheld by the lender or owner until specific milestones are met or work is satisfactorily completed.
Why Holdbacks Matter in Real Estate
In Canadian construction, holdbacks protect owners and lenders by ensuring contractors complete work and pay subcontractors.
Key points:
- Often required by provincial lien legislation
- Typically 10% of each progress payment
- Released after lien periods expire and deficiencies are resolved
Understanding holdbacks helps manage cash flow and reduce risk of contractor default or liens.
Example of a Holdback in Action
The lender applied a 10% holdback on each draw until the project passed inspections and lien periods expired.
Key Takeaways
- Portion of funds withheld during construction
- Protects against incomplete work or liens
- Typically 10% of each progress payment
- Released after work is complete and lien period ends
- Required by law in many provinces
Related Terms
- Construction Loan
- Lien
- Draw Schedule
- Hard Costs (Construction)
- Encumbrance
September residential sales, not seasonally adjusted; the annual comparison uses CREA’s revised figures. Chart: 
Annual changes in the unadjusted national MLS® HPI and average sale price. The average is affected by the mix of transactions. Chart: 
Seasonally adjusted residential months of inventory by province. Local property types can differ substantially. Chart: 
Ontario and B.C. are the two provinces with forecast annual average-price declines in 2026. Chart: 
Annual average transaction prices in Canadian dollars. Forecast values are not December price targets. Chart: 
Five-year changes in seasonally adjusted composite MLS® HPI benchmarks, September 2021 to September 2026. Chart: 
