Hold back clauses are a way for buyers to ensure that sellers do things they are contractually obligated to do in the Contract of Purchase and Sale.
A holdback clause is a clause in the Contract of Purchase and Sale which requires the Buyer’s lawyer to keep or “hold back” some of the purchase price money the buyer pays from the seller until the seller AFTER the completion date. The money can be released if the seller proves they have completed whatever they were contractually obligated to complete. At the end of the period of time for the Hold Back, the money can be released by the Buyers Lawyer to the Seller if the money is not used for the specified purpose.
A Holdback Clause used when the seller is responsible for:
- repairs to a property before the Completion Date
- payments to a third party after the Completion Date as part of the deal.
The holdback avoids having to sue a Seller, which can be expensive and time-consuming.
The holdback allows for sufficient money to with withheld from the Seller until they complete the required work or payments before the holdback date. If the Seller does not complete the required work or payments by the required date, the money held back will revert back to the buyer. A Buyer does not have to rely on the Seller’s word to complete the work or payments, they have money that is held back to ensure the Seller has the needed incentive if the incentive is needed.
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