The holdback agreement

An essential tool to protect both buyers and sellers

Often unfamiliar to the general public, the holdback agreement nonetheless plays a decisive role when an issue must be resolved after the signing of the deed of sale. The notary uses it to temporarily secure a portion of the sale proceeds to ensure that an obligation will be fulfilled or that an identified risk will be covered.

What is a holdback agreement?

It is an agreement signed by both the buyer and the seller in which a portion of the purchase price is temporarily withheld in the notary’s trust account. This amount serves as a guarantee to ensure that the obligation in question will indeed be respected after the transaction.

It can be viewed as a financial “safety cushion” that protects both parties without slowing down the process. Instead of delaying the signing until everything is fully resolved, the sale proceeds as planned, but a specific amount—often ranging from a few thousand to several tens of thousands of dollars, depending on the risk identified—is set aside.

How does it work?

In practical terms, it works as follows.

• The notary holds the funds in trust after the sale has closed, until the obligation described in the agreement has been fulfilled within the agreed-upon timeframe.
• If the seller meets their obligations, the entire amount is released to them.
• If the obligation is not fulfilled, all or part of the funds may be paid to the buyer to cover corrective costs or necessary steps, as provided in the agreement.

Everything is clearly defined in advance: the amount held back, the timeframe, the nature of the obligation, and the rules governing the release or payment of the funds.

What are the advantages?

• For the buyer, it is a tangible and reassuring protection. If a problem or delay arises, funds are already earmarked to address the issue.
• For the seller, it is a flexible solution that allows the transaction to close even if something remains temporarily outstanding (work to complete, a document to provide, a situation to regularize, etc.).

In summary, the holdback agreement makes it possible to finalize a transaction while limiting risk for everyone, and ensures that post-closing commitments are genuinely carried out. It is a simple, legal, and remarkably effective tool to secure the entire sale process.

However, it remains essential to draft this holdback agreement carefully and to include clear and precise terms, conditions, procedures, and timelines. Your notary (or your lawyer) will be able to assist you in this regard.

This article was prepared with the collaboration of Mtre Émie Talbot, Notary at Blanchard Lupien Notaires LLP.