Holdbacks Flashcards
Payment flow in construction
In most cases flow from the top of the pyramid down
How were holdbacks created?
Provincial lien legislation created a system of holdbacks
How does system of holdbacks work?
under which each level must hold part of the payment back from the level immediately below it in the construction pyramid for the benefit of the party two levels below
Holdback
statutory amount required to be held back to limit exposure under lien legislation
Who is required to holdback in NB?
Just the first level of the pyramid (statutory owner)
Holdback becomes
a fund for which claimants (sub-contractors) can make use for to satisfy outstanding amounts
What happens if owners don’t holdback?
may have to pay the holdback percentage again if there is a lien
Subcontractors have a…
charge against the land and the holdback
Finishing holdback
- NB doesn’t have
- Additional percent held back after substantial performance
Holdback represents
a percentage of the value of the work done at the time of payment
What basis is holdback calculated on?
Holdback calculated on the basis of the contract price
How to calculate if no contract price?
calculated on the basis of the actual value of the work, services, or materials done
How to ascertain actual value of work?
usually an ascertainable value of the materials supplied, hours worked, and services rendered
Amount of holdback…
accumulates and increases as the work progresses
What if the contractor abandons the project prior to completion?
the owner need only hold back the percentage calculated on the value of the work actually carried out
2 numbers for holdback in NB
- Under $15,000 the percentage to be held back is 20%
- $15,000+ the percentage is 15% (PRACTICALLY THE ONLY ONE USED)
Why is 15% the norm in NB?
- *VERY RARE TO HOLDBACK UNDER $15,000**
- Under this amount practically speaking most contracts won’t abide by holdbacks and won’t accept the job
What does holding back 15% do if sub doesn’t know about the lien?
Paying 85% of the value of work to the general contractor removes the lien abilities of the subcontractor beyond 15% if they don’t know about the lien
What if owner gets notice of a claim for a lien prior to reaching 85% payout of contract price?
If the owner gets notice of the lien claim prior to reaching the 85% payout of contract price, the lesser of the claim for lien or remainder of contract price must be held back
Retention period
The owner must retain the holdback until the job is completed and for a specific period of time after that
What does the retention period represent?
That period of time represents the amount of time for which subcontractors could register a lien
How long is the holdback retention period in NB?
60 days after completion or abandonment
What happens after retention period?
Holdback will be released after retention period
What about if nothing is owed to the contractor?
Statutory holdback must be kept even if there is nothing owing to the contractor by reason of breach or abandonment of the contract
Several contractors
In cases where the owner is contracting with several contractors, and liens are filed under several contractors, the owner is going to need to have a separate account for each holdback
In cases with several contractors
each lien claimant will be confined to that separate holdback, they can only go after holdback from the contractor that hired them
No setoff against the holdback
- Holdback amounts cannot be used to set off costs for completion, damages, or any other purposes
- Ex: owner cannot say to contractor “you did deficient work so I am going to take money from holdback”
- Can be setoff after 60. day period of retention and funds released
Notice of Lien
If the owner gets notice from a lien claimant that will trigger a duty for the owner to retain the face value of the claim from the amount payable to the contractor in addition to the original percentage
Notice of lien must
be in writing + must contain a sworn statement with respect to the amount of the lien
Payment made under notice of lien section does not…
disentitle lienholder to a claim for any balance remaining payable from the originally retained money
How can the contractor deal with the lien claim?
- Resolve the non-payment issue with the subcontractor
- Vacate the lien (paying money into court in the amount of lien claims, which will then attach the lien to that money and clear that title)
A holdback is not
A trust
