Annual Holdback Release in 2026: Owners Need a New Playbook
For decades, owners have treated the 10% statutory holdback as the ultimate safety net. As of January 1, 2026, that mindset can create real cash-flow, administrative, and contract-administration risks for longer projects. Those issues are manageable, but only with a deliberate approach to budgeting, tracking, and contract drafting.
What Changed
Ontario has introduced a mandatory annual holdback release regime under section 26 of the Construction Act since January 1, 2026. In short: holdback is no longer managed only at project close-out; it is released on a contract-anniversary cycle. The process also includes a new publication step. Owners must publish a Notice of Annual Release of Holdback (Form 6) on a construction trade news website.
Annual Release Timeline (High Level)
Each year, the process is tied to the anniversary of the date the contract was entered into:
| Trigger date | Anniversary of the contract date |
| Notice publication | Within 14 days after the anniversary, owner should publish Form 6 stating the holdback amount and intended payment date |
| Payment window | Owner should pay the holdback no earlier than 60 days and no later than 74 days after publication, provided no lien has been preserved or perfected in the applicable period |
| Downstream payment | Contractors and subcontractors generally must pay holdback down the chain within 14 days of receipt (subject to lien conditions at each tier) |
If payment is blocked by a preserved/perfected lien, the holdback does not simply stay with the owner. The regime contemplates payment after the impediment is resolved, with specific timing rules.
Practical Impact for Owners
1) Transition risk: long projects may face a sudden lump-sum release
For contracts entered into before January 1, 2026, the annual release regime does not necessarily start on the first post-2026 anniversary. There is a one-year “grace period,” so the first mandatory annual release is commonly triggered on the second anniversary after the amendments take effect.
As a result, the first annual holdback release for a pre-2026 contract can include holdback accrued before that trigger date. On long projects, this can create an unexpected lump-sum cash outflow.
Example (multi-year infrastructure project started before the amendment):
| June 1, 2024 | Contract date |
| January 1, 2026 | Amendments in force |
| June 1, 2026 | First anniversary post-amendment – no release required yet |
| June 1, 2027 | Second anniversary post-amendment – mandatory annual release triggered |
Practical steps:
- Confirm the first annual holdback release date.
- Estimate the payment amount.
- Build the payment into cash-flow planning and budgets.
2) Administration risk: owners now need a “holdback release checklist”
Holdback can no longer be managed only as a project close-out task. It now requires contract-anniversary compliance – with clear ownership, deadlines, and recordkeeping.
Practical steps:
- Create a master contract anniversary register for every prime contract.
- Diarise the 14-day publication deadline and assign a clear internal owner.
- Track holdback by contract year, so the notice states the correct release amount.
- Keep a standing lien checklist: annual release depends on whether any liens have been preserved or perfected.
3) Risk allocation: statutory holdback is not a deficiencies fund
Under the 2026 annual release regime, it becomes harder to treat statutory holdback as a practical “catch-all” reserve for performance issues on long-term projects. So, owners should revisit their leverage and security strategies for projects that go off track.
Practical steps:
- Improve quality/deficiency management procedures (to identify and document issues as early as possible).
- Strengthen set-off and remedies against non-holdback monies, and ensure the workflow can apply them in practice.
- Re-evaluate project security – non-statutory deficiency/warranty holdbacks and performance bonds will matter more because of the annual holdback release.
4) Template risk: older holdback clauses may no longer match the statute
Many contract templates were drafted around mechanisms that are now changed or no longer align with the statutory workflow (for example, older notice processes or phased/optional holdback release language). Even if the contract language is not technically invalid, it can become misleading in day-to-day administration.
Practical step: update standard language and internal procedures so project teams do not rely on tools that no longer exist.
Key Takeaways
- Calendar the contract date anniversary for every prime contract – annual holdback release is tied to that date.
- Budget for annual cash outflows, and identify any transition-period lump-sum exposure on pre-2026 contracts.
- Do not treat statutory holdback as a general deficiencies reserve.
- Update contracts, templates, and workflows to match the new regulations.
If you have any questions about annual holdback release or changes to the Construction Act, please contact a member of Construct Legal.
This article is not legal advice and is provided for informational purposes only.