Under a new law, effective November 17, 2023, an owner’s ability to withhold retainage on private construction projects in New York is now limited to five percent (5%). The new law applies to private construction contracts with contract sums greater than $150,000.00. This marks a significant change to the retainage laws in New York. Under previous law, an owner was able to withhold “a reasonable amount” of the contract sum as retainage. Under the new law, the parties are not permitted to negotiate or “contract around” the new 5% retainage limit but are permitted to agree to a retainage amount of less than 5%.

The bill (Bill 3539), signed into law by Governor Kathy Hochul on November 17, 2023, amending Sections 756-a and 756-c of the Prompt Payment Act (N.Y. Gen. Bus. Law § 756), also provides that retainage shall be released by the owner to the contractor no later than 30 days following final approval of the work under the construction contract.

To the extent an owner (or contractor or subcontractor) fails to release its respective amount of retainage to the relevant parties, as required by statute, each shall be subject to paying 1% in interest per month beginning on the date retention was due and owing.

These amendments to the Prompt Payment Act went into effect immediately and apply to contracts entered into on or after November 17, 2023. As such, project owners, contractors and subcontractors conducting business in New York are advised to review their new or existing contracts carefully with a construction law attorney in order to ensure compliance with the new law.