Show me the Money! Timing the Release of Holdback

Show me the Money! Timing the Release of Holdback

In Alberta, where a contractor is of the opinion that the work under its contract is substantially performed, the contractor may issue and deliver to the owner a certificate of substantial performance (“CSP”) in respect of the contract. Taking this step allows a contractor to receive payment of the statutory 10% holdback prior to its work under the contract being totally complete.

The Builders’ Lien Act requires that any CSP issued by a contractor be posted at the project site within 3 days of being issued. This posting provides notice to subcontractors and suppliers that the 45 day clock has started counting down to the date an owner will be able to release the 10% holdback to the contractor, provided no liens are registered. Any liens registered after the expiry of the 45th day and the payment of the 10% holdback to the contractor will only attach to the minor lien fund, invariably a much smaller pot of money.

In the recent Albert Court of Appeal decision, H20 Plumbing & Heating Ltd v Maximum Tank Truck Services Ltd, 2018 ABCA 381, the plaintiff/respondent was a subcontractor who registered a lien on the 46th day after the issuance of a CSP and apparently after the owner had released the 10% holdback to the contractor. The unlucky trade argued that it should be the posting of the CSP at site that starts the 45 day clock not the issuance of the CSP by the contractor to the owner. It was argued that for a CSP to properly and fairly serve its function as notice, it is only the act of posting which allows subcontractors and suppliers to be aware that the 45 day clock has started to run.

This argument was rejected by the Court of Appeal who noted the express language in the Builders’ Lien Act and the fact the Act also provides an express remedy for failure to post a CSP which doesn’t include any extension of the 45 day period but instead makes a contractor liable for damages flowing from its failure to post a CSP. The Court of Appeal pointed to the specific wording of the Act and the remedies found therein to explain how the Act addressed the potential unfairness to unpaid subcontractors and suppliers arising from the fact that it is the act of issuance and not posting which starts the 45 day clock for the release of the 10% holdback.

How does this decision affect you?

This decision gives owners confidence that they can release the 10% holdback to a contractor on expiry of the 45th day from issuance of a CSP, provided no liens are registered on title. An owner does not need to also confirm that the CSP is posted at site or be aware of the date of the same. Similarly, contractors can have confidence they are entitled to receive payment on expiry of the 45th day after issuance of a CSP. The failure to post a CSP at site does not prevent the release of the 10% holdback, but does expose a contractor to liability for damages from subcontractors and suppliers who do not lien in time to attach to the 10% holdback before it is released. Subcontractors and suppliers need to be wary that in addition to watching for the posting of a CSP, they also need to carefully read the CSP to confirm the date of issuance.

If you are involved in a dispute over a construction contract or need assistance in understanding the Builders’ Lien Act, Field Law can help. For more information, contact Field Law, to discuss your options.

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