Understanding Holdback Clauses in Ontario Real Estate: What Buyers and Sellers Should Know

When buying or selling a home in Ontario, most people focus on the big picture: purchase price, mortgage approval, and the closing date. But one important tool that’s often used to resolve last-minute issues, especially in new builds or properties with incomplete work, is the holdback clause.

A holdback is a portion of the sale proceeds that’s temporarily withheld on closing and held in trust by a lawyer until a certain condition is met. These clauses are common in situations where the seller hasn’t completed agreed-upon repairs, where there’s unfinished construction, or where there’s a delay in receiving final inspection reports or permits.

For example, if the seller agreed to repair the roof or install a missing appliance before closing but fails to do so in time, a clause may be added to withhold $5,000 until the work is completed. This gives the buyer peace of mind and encourages the seller to follow through even after closing.

But here’s where it gets tricky: holdback clauses need to be precisely worded. Vague or informal language can lead to disputes. Who decides if the work is acceptable? What happens if it’s never done? When exactly is the money released? A poorly drafted clause could leave both parties in a legal grey area.

Buyers should also be aware that holdbacks don’t apply automatically. They must be negotiated before closing. If a serious deficiency is discovered late in the process, your lawyer may be able to negotiate a holdback at the eleventh hour, but only if both parties agree.

Sellers, meanwhile, should know that a buyer cannot unilaterally demand a holdback at closing unless it’s already part of the Agreement of Purchase and Sale or added by mutual consent. That’s why it’s critical to deal with known deficiencies proactively and communicate with your lawyer well before closing day.

Holdbacks can be a powerful tool for protecting both buyers and sellers during uncertain closings but only if they’re used correctly and legally. Whether you’re dealing with incomplete repairs, outstanding permits, or post-closing obligations, a well-drafted holdback clause can help avoid disputes and delays.

Need help drafting or negotiating a holdback in your real estate deal? Our Ontario real estate lawyers are experienced in handling complex closings and can help ensure your interests are protected.

The content on this post is for information purposes only and is not legal advice, which cannot be given without knowing the facts of a specific situation. You should never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. The use of the website does not establish a solicitor and client relationship.