Please explain "10% hold back"

[Immigrant]

My renovations and addition is all done. I will be paying an invoice today, and then the is still another amount owing that is stated as the final 10%. This is my first time dealing with this so I need some advice on the following.
The contract stated there would be 6 payments.
1 deposit
2 20% at onset of work
3 30% after framing inspections
4 20% on when roof and siding done
5 20% after plumbing, flooring, drywall,painting
6 10% on completion.

I will be paying no. 5 today. But there was some areas where we came in under budget, like flooring. He also ordered some wrong size windows ( we installed them as I could not wait 4-6 weeks for the new windows) and he said he will reflect the price differences in invoice no. 6
I read and heard about a 10% holdback, which I assume no. 6 is. How does that work? When do I pay that. Could he load the final 10% with some BS add on's?
How do I know the subs got paid?

[LKILR]

Not sure but I think you hold the last 10% until your satisfied that all aspects of the contract are complete. Also you hold the 10 until you are satisfied that all trades are paid as well

[CaberTosser]

To ensure the subs got paid you can request that the general contractor provide letters from each of the subcontractors stating they have been paid and that they have no liens or encumbrances on the project, you can even request that these letters be notarized. I know there is an official legal term for such a letter though it escapes me.

As for extras that might have been added or mutually agreed to those could well be in there. Personally I prefer to invoice for any extras separately and prior to the final invoice. It keeps things tidy and retains my right to lien the property should the need arise.

[Newview01]

To ensure the subs got paid you can request that the general contractor provide letters from each of the subcontractors stating they have been paid and that they have no liens or encumbrances on the project, you can even request that these letters be notarized. I know there is an official legal term for such a letter though it escapes me.

As for extras that might have been added or mutually agreed to those could well be in there. Personally I prefer to invoice for any extras separately and prior to the final invoice. It keeps things tidy and retains my right to lien the property should the need arise.

Statutory Declaration. Is a good idea though.

Although he might need the last 10% to pay his subs.

Edit: he also might be holding back 10% from his subs till you sign off that you are happy with his subtrades' work.

[takeiteasybird]

To ensure the subs got paid you can request that the general contractor provide letters from each of the subcontractors stating they have been paid and that they have no liens or encumbrances on the project, you can even request that these letters be notarized. I know there is an official legal term for such a letter though it escapes me.

As for extras that might have been added or mutually agreed to those could well be in there. Personally I prefer to invoice for any extras separately and prior to the final invoice. It keeps things tidy and retains my right to lien the property should the need arise.

It's a statutory declaration. OP if you google this you can get template forms if you wish to use them.

[iliketrout]

Not sure but I think you hold the last 10% until your satisfied that all aspects of the contract are complete. Also you hold the 10 until you are satisfied that all trades are paid as well

x2. Depending on the contractor and your working relationship you may have a hard time getting deficiencies fixed to your satisfaction if there is no money left on the table. I would assume this last 10% is pretty much all profit to the contractor after he's paid his subs and for his materials and costs for self-performed work, so they are motivated to get it and therefore motivated to get your final signoff.

[Albertadiver]

I have to run to a site, but briefly, there is a big difference between Statutory hold-back and deficiency hold-back.

Based on what you've noted, you should apply a deficiency hold-back. You CANNOT hold money back on the statutory (or legislated) hold-back.

Don't release the stat holdback until you see a stat dec and WCB clearance. Substantial completion must be posted, and then the payment is due after 45 days. If you don't agree with substantial completion, you have to notify in writing and say why. (in short, project should be 97% complete and able to be used for it's intended purpose)

I'll post with more info when I can.

http://www.qp.alberta.ca/documents/Acts/b07.pdf

http://prowsechowne.com/understanding-albertas-lien-act/

http://www.mondaq.com/canada/x/565796/Building+Construction/Construction+Holdback+Requirements+Not+for+Dummies

[2 Tollers]

Given that there were changes in the project that resulted in credit to progress claim 6 you should ask for a formal break down to be given to you to review prior to any invoice being provided. A change to claim 6 is a change to the original contract. Having the paper work would ensure following the contract and requirements for revisions to the contract.

Also prior to progress claim 6 being submitted all that you have all inspections (city) signed off - copies in your hands, a SD stating subs have been paid and there will be no outstanding claims. If the city inspectors have not completed their inspections the final work may not be complete.

Keep in mind that progress claim 6 is a claim and if you have defective work that needs to be repaired, you need to have this clearly stated and a dollar value established. It will be up to you to identify the defective work if any. You cannot use the 10% to cover deficiency hold back. This would be over and above.

You have not mentioned a warranty period and any funds held for this. While it is not common in residential construction we did this when we did our last major modernization. We agreed with the contractor on a sum and held it for an additional 90 days after move in to deal with warranty issues.

[schmedlap]

I have to run to a site, but briefly, there is a big difference between Statutory hold-back and deficiency hold-back.

Based on what you've noted, you should apply a deficiency hold-back. You CANNOT hold money back on the statutory (or legislated) hold-back.

Don't release the stat holdback until you see a stat dec and WCB clearance. Substantial completion must be posted, and then the payment is due after 45 days. If you don't agree with substantial completion, you have to notify in writing and say why. (in short, project should be 97% complete and able to be used for it's intended purpose)

I'll post with more info when I can.

http://www.qp.alberta.ca/documents/Acts/b07.pdf

http://prowsechowne.com/understanding-albertas-lien-act/

http://www.mondaq.com/canada/x/565796/Building+Construction/Construction+Holdback+Requirements+Not+for+Dummies

The schedule of payments in the contract is one thing. The Builders' Lien Act holdback is another. The following is simplistic - you need to read the legislation and/or consult a knowledgeable lawyer in any particular case. Actually, it is MANDATORY (you and the contractor cannot legally contract out of this) to hold back 10% of the value of work completed (generally related to contract price to date, but not always) until 45 days after full completion, as part of each progress payment (not just at the end). This is the builders lien holdback fund. After the 45 days is expired this can be released if no liens have been filed. Any unpaid subcontractor, laborer, or supplier can file a lien on your title if they do so within 45 days after the last time they worked or supplied. If you have the 10% holdback (or whatever greater sum is still owing at the time a lien is filed) this is the maximum of your liability. If you do not, you can be liable to pay this to remove the lien(s), and will have to pursue the contractor for reimbursement (good luck if he wasn't paying his subs). Getting a statutory declaration ("I swear I have paid them all....") is only useful if it turns out to be false (and this happens all the time!!), whereupon the claim against the contractor adds false pretense and the declarant may be charged criminally (though hardly ever happens).

[Immigrant]

Thank you all for taking time to reply. I have a better understanding now.
I just got off the phone with the plumber, electrician, concrete guys, flooring guy and dry waller. They have all been paid but I did ask for written confirmation.
Also phoned the RM and the building inspector and they have no issues with the job.
I have written confirmation from the contractor for 1 year warranty on workmanship and materials unless longer covered by manufacturer. But who knows if that will be honoured or not once the walls come crumbling down.
I also phoned the contractor this morning and asked him to fax his insurance policy to my insurer. If he has nothing to hide he should have no problem doing it. Not sure what we can do with that information but at least we have something to go on in case there are defects later on and he does not answer his phone.

I must admit it is sad that we mistrust people. It seems one cannot do business on a handshake alone anymore. It was a stressful 3.5 months. I lost 11kg just from stress. To all the contractors out there, please communicate with your clients. Tell them if there are going to be delays or if you run in to problems, or if you made a mistake. People are not stupid, they have access to forums like this and get valuable 2nd opinions.

To all the hard working honest trades and contractors, may you be successful and get more work than you can handle.

[Immigrant]

And I will hold on to the 10% for the next 45 days.....

[Ronji]

If you hold back 10% I suggest depositing it with a lawyer so they can search for any liens. I have never heard of holding back 10% as "MANDATORY".
I have been in the renovation industry for a number of years, and done 100's of renovations, and I have only had one customer hold back 10% and it was deposited with my lawyer. Keep in mind though, if you do not place it in trust with a lawyer, you can not hold back $5000.00 for a $50.00 item. This is a common misconception.
What we do at the substantial completion stage, is determine the $ value of any remaining work with the homeowner. If the remaining balance of work is $2000.00 they can hold back the $2000.00 for the remaining work. When the remaining work is complete, they would pay us the $2000.00.
For example this is quite common for exterior (stucco, side walks etc.) work that cannot be completed due to winter.
If your renovator is honest and reliable, you should never have a problem.

Best to always check to see who is a member of the Canadian Home Builders and Renomark before you sign with anybody. Lots of scammers out there with no insurance, WCB. The scammers give us honest people a bad name. I repaired lots of work done by dishonest renovators.

[Drewski Canuck]

Cement Bench will be along soon enough, but in the mean time, DO NOT do any payments on the Builder's Lien Holdback of 10 % of the total contract value until you have in fact searched the Land Titles Registry to determine that on the 46th day, after completion of the work, there are no Liens registered on Title.

The completion of work question is where things often get fuzzy. That is where a list of sub contractors should be contacted, given notice that there will be payment of the lien holdback, and a stat dec that they have done all there work, is useful. the usual story is someone attends on site to "complete the work" such as adjusting heating vents, triggering a further 45 days to lien the project.

The Certificate of Substantial Completion, is a trigger point for the Sub Contractors, which is why it is posted on site as NOTICE to the Sub Contractors. It is not for your benefit as the Owner.

Think of it this way. The Builder's Lien Act Pierces the Corporate Veil, and the lack of Contractual Relationship between the Sub Contractors and Employees and Suppliers, and the OWNER.

Otherwise, the Owner has no contractual obligation to the Employees of the General, or his Suppliers and Sub Contractors.

The sad part is RALPH KLIEN and his buddies reduced the holdback from 15 % to 10 %. It should have been the other way around, and have been INCREASED to 20 %.

Last guy on the job is the one who never gets paid, and there rarely is enough to pay outstanding bills when a General low balled the job, or just decided to keep the money for himself.

Drewski

[JBE]

Also ask for a WCB clearance

[Newview01]

Also ask for a WCB clearance

Why?