Quebec Condo Construction Holdbacks: Is 10% Required?

When a syndicate has work carried out in a divided co-ownership, the question quickly comes up: should a 10% holdback be provided for? In Quebec, this practice is widespread, but is it mandatory? Here is a clear guide for the board of directors (board) that wants to secure its projects and limit risks involving contractors and subcontractors.

Construction holdback: definition, objectives and scope

A construction holdback is a portion of a payment (often 10%) that the syndicate retains until the end of the contract. The “Quebec condo construction holdback” serves two purposes: correcting deficiencies and mitigating the risk of a legal hypothec of construction.

In practice, the holdback applies to each progress payment or only to the final payment, depending on the contract. It is generally released after acceptance of the work, a satisfactory inspection and receipt of key documents (releases, tax attestation, proof of insurance). For work affecting the common portions (roofing, masonry, waterproofing, elevators), it is a useful compliance lever for the board.

• Consider it for: major work on common portions, projects involving multiple subcontractors, and critical work (building envelope, structure, building mechanical systems).
• Adjust it for: small routine mandates (corridor painting, seasonal maintenance), where a lower percentage or payment upon acceptance may be sufficient.

To establish the framework for this holdback, include it from the bidding and contract-award stages. A clear clause avoids ambiguity and strengthens your position if the contractor challenges it.

Is it mandatory in Quebec?

No, a 10% construction holdback is not imposed by any general rule in Quebec. It is a contractual good-management measure. However, the Civil Code of Quebec provides for a legal hypothec in favour of persons who participated in the construction or renovation of the building (see C.C.Q., sections 2724 and following), which exposes a syndicate to registrations in the land register if subcontractors are not paid.

Therefore, the holdback is not “required by law” as such, but it becomes a prudent tool for:

• Discouraging unjustified claims.
• Having an amount available in the event of deficiencies or defective work identified upon acceptance.
• Waiting for the expiry of the periods during which a legal hypothec may be published.

To understand the legal framework, consult the Civil Code of Quebec on LégisQuébec (see legal hypothec of construction, sections 2724 and following).

• Reference: https://www.legisquebec.gouv.qc.ca/fr/document/cs/CCQ-1991

Legal hypothec of construction: the risk to manage

A legal hypothec of construction allows the contractor, subcontractor and material supplier to secure their claim directly against the building. Even if the syndicate has paid the general contractor, an unpaid subcontractor could publish a notice and encumber the common portions. This is the risk that the holdback helps mitigate.

Points for the board to watch:

• Registration deadlines: the right to a legal hypothec must be exercised within short deadlines, which generally run from the completion of the work or abandonment of the project. During this window, avoid releasing the holdback too quickly.
• Acceptance of the work: acceptance marks an important stage. Document it formally (deficiency list, dates and signatures) to ensure that the contractual deadlines run properly.
• Releases: require releases or sworn statements proving that subcontractors and suppliers have been paid before releasing any funds.

For an overview of legal hypothec concepts under the Civil Code, see LégisQuébec (sections 2724 and following). To prevent problems, the Regie du batiment du Quebec (RBQ) recommends checking the contractor’s licence and background.

• LégisQuébec – Civil Code of Quebec: https://www.legisquebec.gouv.qc.ca/fr/document/cs/CCQ-1991
• RBQ – Home: https://www.rbq.gouv.qc.ca/
• RBQ – Licence information: https://www.rbq.gouv.qc.ca/entrepreneurs-constructeurs-proprietaires/licence/

Le Regroupement des gestionnaires et copropriétaires du Québec (RGCQ) also shares good condo governance practices.

• RGCQ – Resources: https://rgcq.org/

Contractual best practices for a syndicate

A well-organized divided co-ownership reduces its risks through a combination of clauses, processes and evidence. Here is a proven framework that your board can apply.

1. Include a construction holdback clause
   – Amount: 10% on each progress payment or on the final balance, depending on the project’s scope.
   – Release conditions: acceptance of the work, correction of deficiencies, delivery of releases, and expiry of the periods relating to the legal hypothec.
   – Deadlines: as a precaution, wait for the expiry of the minimum period generally associated with publishing a legal hypothec after the work is completed before paying the final holdback. Confirm the applicable framework with a legal professional.

2. Structure the payments
   – Progress payments verified by a professional (architect, engineer or technologist) based on actual progress.
   – “Cap” the percentage paid before acceptance (e.g., 90%) to preserve sufficient leverage until completion.

3. Require the right documents before any final payment
   – Releases from the contractor and the main subcontractors and suppliers.
   – Revenu Québec attestation, where applicable, for contracting businesses.
   – Proof of civil liability insurance, CNESST coverage and a valid RBQ licence at the time of the contract.

4. Document acceptance and deficiencies
   – Joint inspection and signed deficiency list.
   – Reasonable correction deadlines; provide for retaining an amount equivalent to the value of the non-compliant work.
   – Acceptance minutes appended to the divided co-ownership’s file (EUC/maintenance logbook).

5. Administrative oversight
   – Board resolution authorizing the contract and the gradual release of the holdback.
   – Informing co-owners at the annual general meeting and recording it in the minutes.
   – Filing the documents within your internal processes or assigning the operation to an external condominium manager.

Useful resources at MultiRent:

• Our services – Operations management
• Our services – Administrative management
• multiRent blog

Other external references:

• Revenu Québec – Revenu Québec attestation: https://www.revenuquebec.ca/

When to retain, how much and when to release? (summary table)

This table provides general guidelines. Adjust them according to the project’s scope, complexity and subcontracting structure.

Project file and documentary compliance

A well-maintained file protects the syndicate if a dispute arises and facilitates an internal audit.

• Signed contract, specifications and plans, work schedule.
• Preliminary checks: RBQ licence, insurance and references.
• Progress payments, progress reports and dated photos.
• Acceptance of the work, deficiency list and acceptance minutes.
• Releases and attestations before releasing the holdback.

Keeping documents in the maintenance logbook (EUC) simplifies budget planning and future work. It also makes it possible to explain, at the annual general meeting, the reasons for an extended holdback or deferred payment.

Frequently asked questions (FAQ)

Does the holdback have to be exactly 10%?

No. Ten per cent is a common market practice, but the percentage is determined by the contract. For a small mandate, 5% may be enough; for a risky project, 10% remains appropriate. The important thing is to announce it in the bid request and clearly state the release conditions.

Can amounts be retained if deficiencies remain?

Yes. Include a clause allowing all or part of the holdback to be retained as long as significant deficiencies remain. The amount retained must be proportionate to the value of the work to be corrected, and the process must be documented (written notice, photos and correction schedule).

What should we do if a subcontractor threatens to register a legal hypothec?

Act quickly. Ask for explanations and proof of the claim, alert your legal adviser and avoid releasing the holdback until the situation has been clarified. Releases and a tripartite agreement (syndicate–contractor–subcontractor) may be necessary.

Useful references:
– Civil Code of Quebec (legal hypothec): https://www.legisquebec.gouv.qc.ca/fr/document/cs/CCQ-1991
– RBQ – Check a contractor: https://www.rbq.gouv.qc.ca/
– RGCQ – Condo management advice: https://rgcq.org/

This article provides general information and does not constitute legal advice. Consult a lawyer or notary regarding your situation.

Do you manage a divided co-ownership in Quebec? Discover our plans or contact us to assess your needs.