HOLDBACK PROVISION: stipulation for another OR DISCRETIONARY power OF INSTITUTIONAL owner?
Me Annie Boivin-Breton, in collaboration with Me Pascale-Dionne Bourassa
A clause providing for the holdback of a payment owed to the general contractor until the delivery by the latter of releases to the client may, depending on the circumstances, constitute a stipulation for another to the benefit of the subcontractors.
Such provisions may be appropriate in the context where the project relates to properties of public utility and in which subcontractors are deprived from their right to register a legal hypothec.
Moreover, in order to conclude that a holdback provision creates a stipulation for another to the benefit of the subcontractors, there must be a clear commitment from the client to the subcontractors (“must withhold money”), as opposed to a discretionary power (“may withhold money”).
Subcontractors must comply with the conditions of application in order to benefit from this stipulation for another. Most of the time, the contract will require that they denounce their claim or their contract to the client.
Link to the French version of the article: D3B- Clauses retenue contractuelle et stipulation pour autrui