What is a BLA Holdback
Section 4 of the Builders Lien Act, SBC 1997, c 45 (the “Act”), creates a mandatory obligation to retain a 10% holdback on the “person primarily liable on each contract, and the person primarily liable on each subcontract, under which a lien may arise under this Act” (a “Holdback”).
A Holdback is equal to 10% of the greater of:
- the value of the work or material as they are actually provided under the contract or subcontract; and
- the amount of any payment made on account of the contract or subcontract price.
Often, these two amounts may be identical (or near identical).
There can be multiple Holdbacks in relation to a single improvement (i.e. construction project). For example, an owner will keep a Holdback from a general contractor, a general contractor will keep a Holdback from its subcontractors or material suppliers, etc.
At times, a Holdback may only be notional. For example, if an owner already has a Holdback against the contractor, the contractor’s Holdback is notional as the funds are still held by the owner.
A Holdback under the Act is different and separate from a deficiency holdback that owners commonly claim at the end of a project.
Why is there a Holdback
For subcontractors and material suppliers, the Holdback system provides a means for trying to receive payment, albeit partial at times, where a general contractor has failed to pay accounts. For example, on a $1,000,000 project, there would be a $100,000 Holdback from the owner to the general contractor. If a subcontractor had accounts unpaid, they may be able to recover some or all of those accounts against the Holdback.
For owners, if used properly, a Holdback can be used to limit liability to subcontractors and material suppliers for accounts left unpaid by others.
When is it required, and Who maintains the Holdback
A Holdback is required for all improvements, regardless of size. If the scope of the improvement is $100,000 or more, there are requirements to maintain a separate Holdback account. The government, a government corporation, and other public bodies may not be required to maintain a separate Holdback account.
The Act does not require a joint account, but an owner must administer the holdback account together with the contractor from whom the holdback was retained.
When and How is the Holdback released?
In accordance with section 8 of the Act, payment of a Holdback required to be retained may be made after expiry of the holdback period, unless in the meantime a claim of lien is filed or proceedings are commenced to enforce a lien against the holdback.
In accordance with the Act, the holdback period expires at the end of 55 days after:
- The issuances of a related certificate of completion; or
- The completion, abandonment or termination of the head contract (if any); or
- The completion or abandonment of the improvement (i.e. the project).
(Note: legislative changes are underway to reduce the holdback period and limit the types of liens that may be claimed against the holdback.)
What if a Holdback was not maintained
If a Holdback was not properly maintained, an owner (or contractor) may be liable for the amount of the Holdback that they were required to maintain. This can mean paying twice for the same work or materials.
What if a dispute arises about paying out the Holdback
It is not uncommon for disputes to arise around whether a Holdback should properly be released, to what amounts of the Holdback are various parties entitled, and whether one party should be paid in priority to another party. If you have questions or concerns about establishing, maintaining, or releasing a Holdback, consult a lawyer.
