What’s a holdback?

A holdback is money temporarily held back from the net sale proceeds of a real estate transaction. Holdbacks are usually written into the contract of purchase and sale. They exist to make sure a specific thing gets done or confirmed.

There are two main types of holdbacks:  money held back for a project that needs to be completed before completion, and money held back for a project that needs to be completed after completion.

TL;DR Holdbacks in BC real estate
  • Holdback = money withheld from seller’s proceeds under the Contract of Purchase and Sale to ensure a task/confirmation.
  • Two types: closing-day (proof before registration) and post-completion (prove then release later).
  • Draft clearly: purpose, amount, standard, evidence, decision-maker, who holds funds, release trigger/date, dispute path.
  • Closing-day holdbacks add timing risk; if proof is late, make it post-completion instead.
  • Post-completion holdbacks need monitoring/admin; set a deadline and name a neutral third-party decider.
  • Budget: sellers may be short for payouts; buyers may need extra cash. Alternatives: do the work pre-completion or use a price credit.

Common reasons for holdbacks

You might see parties holding back a reasonable amount of money to:

  • pay a cleaner or garbage disposal crew if the seller doesn’t clear out their personal items, or any garbage
  • complete outstanding deficiency items on a new build
  • confirm the home was professionally cleaned
  • finish specific repairs (roof, painting, carpet replacement, etc.)
  • cover the cost of issues raised by an inspection or appraisal (fireplace needs repointing, or fixing that crack in the foundation)
  • making sure utilities and other bills for the property have been fully paid (strata fees or levies, property taxes or utilities)
  • deal with non-residency holdback requirements under the Income Tax Act of Canada

Setting a holdback up properly

Holdbacks can fail badly if they are not drafted properly.

The terms of the holdback should be crystal-clear. You will want to include specifics about:

  • the task that needs fixing or dealing with
  • the standard to meet to determine whether it’s done
  • who decides when the thing is “done”
  • what proof you will accept to show it is done
  • the amount that is reasonably required to pay for the issue
  • who is holding the funds
  • when the funds will get released
  • what happens in a disagreement

Here’s a simple checklist you can use when drafting your clause:

Each party should budget some additional funds for their own BC Notary or lawyer to deal with these holdbacks after closing. The cost to deal with holdbacks is NOT included in a standard conveyance transaction, and you will be billed extra for these services.

Click here for your Holdback Checklist

Closing-Day Holdbacks: Proof Before We Can Register

Some holdbacks are meant to be resolved on closing day—meaning we’re trying to prove something happened before we register the transfer.

This is additional work over and above the standard conveyance transaction, and will cost you additional legal fees.

Examples of closing day holdbacks include:

  • having the property professionally cleaned
  • getting all of the junk in the yard hauled away
  • finishing certain repairs that can be immediately done – replacing a broken window, or having a septic system flushed

We need to review the holdback clause built into the contract, and work out a plan for getting it done before closing date. The legal professionals will negotiate with each other as to how best to get the work done, and prove that it has been done.

In some case, this negotiation process can be very complicated. Much depends on how well the holdback clause is drafted.

An example of a clear, simple holdback would be “The Buyer’s Notary will hold back $5,000.00 from the net sales proceeds until the Seller has provided the Buyer with a receipt from a professional cleaning company showing that the property has been fully cleaned prior to the Completion Date. Should the Seller not provide the Buyer with such a receipt on or before the Completion Date, the holdback funds will be forfeited to the Buyer on the Completion Date.”

An example of a bad holdback would be “hold back a reasonable amount until the Seller has cleaned the property”.

You can see how the last clause would be difficult to work with – how much money? Who will hold it? Is the Seller doing the cleaning themselves? When will the hold back end? What happens when the Buyer says the cleaning wasn’t done right or at all?

Problems caused by pre-closing holdbacks

  • Registration risk: is this issue significant enough to stop registration if the fix hasn’t happened? Was this holdback a fundamental term of the contract?
  • Chasing evidence: evidence of the solution must be presented. Someone must get receipts/photos/reports, all before the completion date.
  • Coordination load: Multiple people (trades, cleaners, inspectors) might end up all under a same-day deadline. A seller might fail to get their possessions packed and move in enough time to let the professional cleaners in before the buyer is sitting on the lawn with their movers twiddling their thumbs.

If proof that the problem has been resolved will only show up late on completion day, consider making the holdback a post-completion one instead, so the pressure comes off.

Post-Completion Holdbacks: After Closing Day

If the holdback funds are meant to be kept past completion, then there will be additional follow-up work and cost to monitor the situation, confirm the resolution of the issue, and release the funds.

How post-completion holdbacks usually work

If you have a post-completion holdback, then the procedure to administer and release the holdback generally follows this pattern:

  • We hold funds in trust for a set time or until a condition is met.
  • Evidence arrives (receipts, report, photos).
  • We confirm the issue has been resolved (or continue to administer the funds if the issue has not yet been resolved).
  • Once the issue has been satisfactorily confirmed to be resolved, we release all or part of the funds set out in the clause.

Where disputes usually happen in post-completion holdbacks

Here are some examples of situations where a disputes can arise in a post-completion holdback:

  • Standards creep: “Professional clean” vs. “spotless.”
  • Scope: “Fix the roof” (patch? new membrane? full replacement?).
  • Timing: no deadline = money sits and emails fly.
  • Silence: clause doesn’t say how to break a tie or deal with a particular problem that has come up in the work.

Drafting to reduce disputes

When drafting a post-holdback clause, it’s important to draft it carefully to ensure that you have responses to all possibilities considered. It’s like when that Genie asks you for your three wishes – you need to be very specific about what you are asking for so you don’t unintentionally shoot yourself in the foot.

Here are some examples of things you can do to improve your holdback clauses:

  • Add a deadline (“by Oct 15”) and a default response if the issue hasn’t been resolved by that deadline:
    • If evidence not provided by [deadline], we release the holdback funds to [name].
    • If a dispute arises, an appropriate, named third party (e.g., licensed inspector) decides what the solution should be, in writing, and we release accordingly.
  • If costs could go up, build in a potential for the party who has to do the work to pay extra
  • If costs could go down, be clear about who gets any unused holdback funds.

Budgets, Risks, and Better Alternatives

Holdbacks can impact cash flow on closing. If you have a holdback clause in your contract, make sure you are including that amount in your pre and post-closing budget for the transaction.

Budget impacts to warn clients about

  • Seller: could receive less on closing, which could affect paying out a mortgage or other debts.
  • Buyer: may need extra cash if new costs pop up (deficient inspection items need resolving, re-inspection fees, or appraisals after the work has been done).
  • Both: added legal fees and disbursements.

Alternatives that sometimes work better

If you don’t want the hassle of dealing with a holdback on your transaction, here are some alternatives you might want to consider:

  • Do the work before completion with proof attached to the file.
  • Adjust the sale price or give the buyer a credit for the cost of the work.

Red-flag holdback wording to avoid

When you’re drafting your holdback clause, avoid these vague and unhelpful words:

  • Professionally clean
  • Fix roof
  • Buyer to be satisfied
  • Good working order

In Closing

Want help drafting a holdback clause? Contact us. We’d be happy to help.

Written by: Linda Caisley, BC Notary, August 31, 2025.

FAQs – Holdbacks

A holdback is funds held back by someone in a real estate transaction to make sure something gets finished. Once the thing in question is finished, the money is released.

No. If the job that needs doing is too vague or open-ended, or really cannot satisfactorily be resolved, then the holdback turns into a dispute, and the parties could end up in court to resolve the problem.

No one. Interest is not earned on trust accounts.

If you have a significant holdback, worth hundreds of thousands of dollars, your BC Notary or lawyer might set up a special, dedicated holdback trust account for this purpose, but these are very expensive. Your BC Notary or lawyer will charge you for the setup and maintenance of the account, and those fees can be substantial, as we are required to conduct special reports on these accounts to our governing bodies.

These special trust account also simply don't earn enough interest to make them worth your while.

One of the most important things to sort out when creating a holdback is what a reasonable amount is to fix the problem. If you get it wrong, you will usually bear the cost for the shortfall. Unless you are talking about significant amounts of money, it is simply not worth litigating small amounts. You can always ask the other party to chip in more money, or help in other ways, but at this point you have lost your leverage, and you will likely be doing the rest of the work alone.

Holdbacks are usually kept in a trust account of one of the transaction professionals - a Realtor, a BC Notary or a lawyer.  The contract will set out the terms of the holdback, including who will hold it.

It's rare but possible. It would only happen if all of the parties agreed to it, or if the clause in the contract allows for it. Getting parties to agree to a change in holdback terms can be very difficult, so make sure you get the amount right in the first place.

Only if the contract lets you. We have to follow the terms of the contract.

Only if the holdback clause says so. Usually it's not appropriate for one of the transaction professionals to get involved in resolving the release of a holdback.

Usually the party who is asking for the holdback pays for the administration costs. However, the buyer and seller can negotiate that into their contract if they wish. Generally, if we are being asked to set up and administer a holdback, we charge whoever our client is to do that.

Only if the holdback clause in the contract allows it, or the parties agree to it.

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