Starting in 2027, all Ontario project owners with contracts entered into on or after January 1, 2026, and most owners with contracts dating back to July 1, 2018, must start releasing statutory holdback to their contractors on an annual basis. This requirement is the latest in a series of construction payment reforms under Ontario’s Construction Act. It replaces the traditional model of retaining holdback until substantial performance. Owners and contractors who fail to comply with the notice and payment timelines face exposure to interest claims, payment disputes, and adjudication proceedings.

The annual holdback release process: Notices, timelines, and payment

For applicable contracts (more on that topic below), this is how it works:

  1. After each anniversary of the prime contract, the owner has 14 days to publish a Form 6 Notice of Annual Release of Holdback on a construction trade news website. The notice identifies the basic statutory holdback accrued for services/materials supplied during the preceding year and the intended payment date.
  2. The owner must pay that accrued holdback between 60 and 74 days after publication, unless there is an unresolved, preserved lien in respect of the contract. If there is a lien, the holdback must be released as soon as the lien is resolved in accordance with the Construction Act.
  3. Within 14 days of receipt of the holdback funds, the prime contractor must pay the corresponding holdback to its subcontractors. Then subcontractors must pay their sub-subcontractors and suppliers within 14 days, and so on.

Note that these rules apply to basic 10% holdback only under section 22(1) of the Construction Act, and not to any separate finishing holdback, notice-of-lien holdback, or contractual holdback.

Which contracts are covered?

The new mandatory regime came into effect January 1, 2026, and applies to all projects where the prime contract was entered into after July 1, 2018, or situations where the owner’s procurement process was started after that date. It applies regardless of the contract price or anticipated duration of the project.

For legacy projects where the prime contract was entered into or the owner’s procurement process started before July 1, 2018, the annual release of holdback does not apply.

When does the first release happen?

For applicable contracts, the first release of holdback is triggered by the contract anniversary date occurring in or after 2027.

So, whether your prime contract is dated May 1, 2022, or May 1, 2026, all basic holdback accrued to date must be released following the May 1, 2027 anniversary. Holdback will then be retained on payments made after May 1, 2027, and will be released following the next contract anniversary on May 1, 2028, and so on.

It is important that parties identify and agree on the date the prime contract was entered into.

What this means for participants

Mandatory annual release of holdback is the third piece of statutory cash-flow architecture first introduced in 2018: prompt payment governs when ordinary (90%) progress payments must flow down the pyramid, adjudication provides a mechanism to quickly resolve disputes that threaten that flow of funds, and annual holdback release prevents the remaining 10% from becoming long-term trapped capital.

For contractors and subcontractors, the benefits are clear: the annual release of holdback increases access to funds and reduces the financial burden created by lengthy projects.

For owners, these changes come with challenges. In the past, statutory holdback provided owners with a (limited) form of project security, functioning as a long-term reserve against performance concerns, warranty issues, or unresolved deficiency claims. That will no longer be the case. Once the statutory conditions for release have been met, owners must comply with the notice obligations and release requirements without set-off or deduction. Failure to do so may expose owners to payment disputes, interest claims, and adjudication proceedings. Owners should be mindful that process matters as much as the merits of the claim itself.

Updating your contracts

For all project participants, future contracts should be updated to address outdated language, timelines and processes, and (particularly for owners) to ensure their interests are protected. Parties should consider:

  • References to retaining holdback until substantial performance;
  • Clearly identifying annual holdback procedures, establish responsibility for required notices and aligning payment certification processes with the new statutory timelines;
  • Prior reliance on holdback funds as security for deficiencies or performance concerns; and
  • Negotiating a deficiency holdback clause separate from the statutory minimums.

Ontario’s mandatory annual holdback release regime marks a significant shift toward greater contractor liquidity and stricter payment discipline. While the change will likely improve cash flow in the construction industry, it requires owners to consider new approaches to managing financial risk.

How Miller Thomson can help

Miller Thomson’s Construction Litigation Lawyers advise contractors, owners, lenders and consultants on holdback obligations, prompt payments disputes and the application of Ontario’s transitional provisions. When assessing how the new holdback provisions apply to your project, our team can help.