By Ryan Stubbs
Effective January 1, 2026, Ontario’s Construction Act (the “Act”) underwent one of its most significant overhauls since the 2018 modernization of the former Construction Lien Act. One of the biggest changes was the introduction of a mandatory annual release of holdback regime.
Much has been written about this new annual release of holdback requirement. Law firms, industry organizations, and construction professionals have all published articles explaining the new rules and what they mean for Ontario’s construction industry. Even so, there remains a good deal of confusion as many owners, contractors, and subcontractors are unsure about when the annual release of holdback applies, how it works in practice, and whether it applies to their project. These questions continue to come up as the industry works through the implementation of these new requirements.
Understanding the annual holdback release regime is important for all industry stakeholders as 2027 is expected to be the “first wave” year for mandatory annual release across the industry. This is because, in general, most contracts entered after July 1, 2018, will be subject to the new annual release of holdback starting in 2027. This article will attempt to explain the new regime in as simple of terms as possible.
The New Section 26: Mandatory Annual Release of Holdback
As of January 1, 2026, a new section 26 of the Act makes annual release of basic holdback mandatory for contracts to which it applies. In broad terms, the mechanism works as follows:
- Contract anniversary date: The owner must identify the date the contract was entered into. Every anniversary of that date becomes a trigger point.
- Notice of Annual Release of Holdback: Within 14 days of each contract anniversary, the owner must publish a Notice of Annual Release of Holdback (a new prescribed Form 6, which replaces the former Notice of Non-Payment of Holdback) in one of the designated construction trade news websites (Daily Commercial News, Link2Build, or Ontario Construction News). The notice must state the amount of holdback the owner intends to pay and the intended payment date.
- Payment window: Provided no lien has been preserved or perfected against the holdback, the owner must pay the contractor all accrued basic holdback for services and materials supplied in the preceding year, no earlier than 60 days and no later than 74 days after the notice is published.
- Flow-down payment obligation: The contractor, and each subcontractor in turn, must pay its own subcontractors their share of the accrued holdback within 14 days of receiving payment.
The Transition Rule: Section 87.4(4)
The most immediate question for anyone administering an existing contract is: does mandatory annual holdback release apply to my contract, and if so, when does the first release occur?
For contracts entered into on or after July 1, 2018 but before January 1, 2026, section 87.4(4) provides a phased start-up:
- The first contract anniversary date in 2026 is skipped for annual-release purposes.
- The first mandatory annual release instead occurs at the contract’s next anniversary date that falls on or after January 1, 2027 (referred to as the “second anniversary” of the contract following January 1, 2026).
- At that first release, the owner must publish notice and release all basic holdback accrued up to that anniversary date (i.e., holdback covering more than one year’s supply, since the intervening 2026 anniversary was skipped).
For contracts entered into on or after January 1, 2026, the new section 26 applies immediately and in full – the first notice and release cycle runs from the contract’s own first anniversary date, with no transitional delay.
Quick Reference Guide
| Date the governing contract was entered into
|
Governing holdback release regime | First annual release trigger | |
| 1. | Before July 1, 2018 | Former Construction Lien Act (s. 87.3) – no mandatory annual release; holdback released on the traditional substantial completion/lien-expiry timeline
|
N/A – annual release regime does not apply |
| 2. | July 1, 2018 – December 31, 2025 | New Construction Act s. 26, subject to the transition rule in s. 87.4(4) | First anniversary date falling on or after January 1, 2027 (any anniversary falling in 2026 is skipped)
|
| 3. | On or after January 1, 2026 | New Construction Act s. 26 applies immediately | First anniversary of the contract date
|
Key Takeaways
- Identify the contract date first: Because the applicable regime turns entirely on when the contract was entered into, owners and contract administrators, as well as contractors and subcontractors, should confirm and document this date for every active contract.
- Calendar the anniversary dates: Owners with multiple contracts, particularly multi-trade projects, will need a system to track anniversary dates, 14-day notice deadlines, and 60-74 day payment windows across numerous contracts. Likewise, contractors and subcontractors seeking to be paid holdback annually need to track when this will occur.
- Understand what “accrued” holdback covers: The Act does not define “accrued” as it is referenced in section 26, and for contracts transitioning under section 87.4(4), the first release will span more than a single year of accrued basic holdback – increasing the size and complexity of that first payment cycle.
About the Author:
Ryan Stubbs is a litigator at Soloway Wright LLP with a focus on Civil Litigation and Construction Litigation.
He regularly represents contractors and subcontractors in navigating all manner of complex construction disputes. For construction related inquires, please contact one of our litigation lawyers.
DISCLAIMER: This article is for general information purposes only and is not (and should not be construed as) legal advice. The information contained herein summarizes only certain aspects of the subject matter and is not a comprehensive review of applicable law. All of the foregoing is subject to legal and accounting advice based on the particular circumstances of each potential client.
