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No it is not legal. You don't have to wait for years to be paid. That is nonsense.
You should be paid in full by the contractor now.The most you should have to wait is 45 days.
On top of that if there was no agreement that you deduct the holdback then you do not have to do so. They had to pay you at once.
I suggest that you send them a letter by Registered Mail and in the letter demand full payment by a deadline that you set.
Tell them if they fail to comply you will commence legal proceedings and then will be seeking interest and your costs.
You can sue them in Small Claims Court and can self-represent and if it gets that far and you find you need some help as you go through the process you can always post on this site again and I can assist you further.
Please feel free to post back with any follow-up questions you may have. If you don't have any then I hope I have earned a 5 star rating but if you don't feel that I have please don't hesitate to reply back and let me know what more I can do to assist you. Finally, please know that even after you rate me I will be here for you and you can ask follow-up questions if you think of them later on at no further charge of course.
This article explains how holdbacks work;
But the holdback is what the owner will be personally liable to the subcontractors for if the contractor doesn't pay them. It is not meant for the sub-contractor not to be paid.
The owner can pay the subcontrators directly or the contractor has to pay you, the subcontracot in full.
But mainly this is about contract law. The holdback has nothing to do with you. It is between the contractor and the owner.Your contract is with the contractor and your agreement is that you are to be paid in full when the work is done.
Is there anything more I can help you with at this point in time?