No Double-Dipping: Ontario Court of Appeal Limits Holdback Priority to Unpaid Invoices
In KingSett Mortgage Corporation v. Mapleview Developments Ltd., 2026 ONCA 512 (KingSett), the Ontario Court of Appeal gave a clear answer: deficiencies in holdbacks are calculated from unpaid invoices. However, the ruling comes with an important caveat: it does not extend to multi-tier projects where subcontractors hold lien claims.
The KingSett Dispute: $4 Million in Invoices, but How Much Takes Priority?
Mapleview Developments defaulted on its mortgage while developing a residential townhouse project in Barrie. Following the appointment of a receiver, the property was sold to Dunsire Homes, which assumed the lender’s position in the subsequent priority dispute.
Two contractors had invoiced approximately $4 million for work on the project. Although many invoices had been paid in full, both contractors were still owed money when Mapleview became insolvent.
The contractors argued that their holdback priority should equal roughly 10% of the total amount invoiced, including amounts already paid. Dunsire maintained that only unpaid invoices should count. The distinction would determine how much of the contractors’ claims ranked ahead of the building mortgage.
Why the Court Excluded Paid Invoices from Holdback Priority
Under Ontario’s Construction Act, payers must retain a statutory basic holdback equal to 10% of the price of services or materials supplied. Section 78(2) gives construction liens priority over a building mortgage, but only to the extent of any deficiency in the required holdbacks.
The Court dismissed the contractors’ appeal, confirming that the deficiency must be calculated based on unpaid invoices in the circumstances before it. A holdback exists to secure outstanding lien claims. Once a contractor has been paid in full, there is no remaining lien to protect in respect of that amount, provided no subcontractor is asserting a claim against the holdback.
Allowing fully paid invoices into the calculation of the deficiency would result in a double benefit for the contractor: first through the owner’s payment, and again through priority over the mortgage lender. The Court rejected this, relying on the principle that a premature payment of a holdback should not place a lien claimant in a better position than if the holdback had been properly retained.
What Does KingSett Mean for Subcontractor Lien Claims?
The Court expressly limited its ruling to circumstances where no subcontractor lien claims existed at the time of the priority dispute. This distinction is particularly important on projects involving multiple tiers of contractors and subcontractors.
A contractor may have been paid in full, notwithstanding a deficiency in the owner’s holdback, while some or all of its subcontractors remain unpaid. The statutory holdback provides security for lien claims further down the construction pyramid.
The Bottom Line
For contractors and lenders, KingSett provides greater clarity when assessing recovery on financially distressed construction projects. For subcontractors, however, the rule remains the same: owners are required to retain statutory holdback, and their failure to do so comes at their lenders' peril.
HOW WE CAN HELP
RAR Litigation advises contractors, subcontractors, owners and lenders on construction lien claims, statutory holdback obligations and priority disputes. Our Construction and Infrastructure Group assists clients in protecting their rights and navigating payment disputes, including those arising from financially distressed construction projects. To discuss how we can assist with your construction dispute, contact us.