Retainage and Substantial Completion: 2016 Proposal and Current Law

Current-law update — September 7, 2026

The article below is a historical discussion of a 2016 proposal. Its references to the law as it stood then should not be used as a statement of today's retainage requirements.

Later legislation, Chapter 657 of the Laws of 2023, changed the rules for covered contracts entered into on or after November 17, 2023. General Business Law § 756-a now addresses a contractor's final invoice to the owner upon substantial completion as defined or contemplated by the contract. § 756-c imposes a 5% retainage ceiling and limits downstream retainage to the owner's actual percentage. Coverage exclusions and the contract date remain important.

For an explanation of the current rules, read our updated Prompt Payment Act guide. Kushnick Pallaci PLLC assists with construction payment and retainage provisions.

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Original 2016 legislative commentary

Every once in a while the New York Legislature has an idea that catches the attention of the construction industry.  Once such idea is set forth in Assembly Bill 10446 which was sent to the committee on economic development on May 27, 2016.

This proposed amendment to the General Business Law (specifically section 756) has a few interesting components:

1. It would amend section 756 and add a definition of “substantial completion.”  The bill proposes to define substantial completion as “the state in the progress of the project when the work required by the construction contract with the project owner is sufficiently complete in accordance with the construction contract so that the project owner may occupy or utilize the work for its intended use…”  This definition is not so out there or different from the generally understood meaning of the term (and some contracts even specifically define substantial completion in almost this exact manner).  However, codifying the definition of such a critical term in the construction industry is a big step.  It will be interesting to see how the committee considers this term.
2. It would amend section 756-a of the General Business Law to allow subcontractors to submit a final invoice for payment upon reaching substantial completion (using the new definition).  Notably, the current version of 756-a says that a subcontractor can submit a final invoice “upon the contractor’s performance of all the contractor’s obligation under the contract.”  The current phrase is admittedly vague but the proposed definition of substantial completion isn’t exactly black and white.  One this is certain:  the new language would be far more beneficial to subcontractors.  For example, when the punch list remains outstanding the the subcontractor has not “peformed all of his obligations under the contract.”  But when the punch list is outstanding the project has most likely reached substantial completion.  This could be a different of days, weeks or even months in terms of when the subcontractor would be permitted to issue a final invoice.
3. Finally, and not least of all, the bill would amend section 756-c of the General Business Law to put a specific fixed cap on retainage.  Currently, the law only says that retainage is limited to a “reasonable amount.”  You can almost guarantee that the owner, general contractor and subcontractor have a different view of what exactly constitutes a reasonable amount.  But the revised section 756 would limit retainage to no more than 5%.

Right now the bill is in its infancy and may die in a committee somewhere along the way.  As of this writing, there are no floor votes scheduled for the bill.   But it is one that is worth keeping an eye on: especially for subcontractors.

New York Retainage Rules: Limits and Release of Payment

Updated September 7, 2026. Retainage is the portion of a construction payment held back until the conditions for release are met. An old contract example using 10% should not be treated as the current rule for a covered New York private construction contract.

Check coverage and contract date first

The private-project Prompt Payment Act applies to contracts within General Business Law § 756, generally involving aggregate project costs of at least $150,000, subject to public-works and residential exclusions. Different rules can govern excluded projects.

Chapter 657 of the Laws of 2023 changed the retainage rule for covered contracts entered into on or after November 17, 2023. Older contracts require review of the applicable statutory version and their terms.

The five-percent ceiling

§ 756-c limits owner retainage to 5% of the contract sum. Contractor and subcontractor retainage may not exceed 5% and may not exceed the owner's actual percentage. If the owner retains 3%, a contractor cannot retain 5% downstream under that provision.

When must retainage be released?

The owner's statutory release deadline is no later than 30 days after final approval of the work. Downstream parties must release the corresponding retainage received. Improperly withheld retainage can accrue interest at 1% per month under § 756-c.

The right to submit a final invoice upon substantial completion under § 756-a is distinct from the retainage-release trigger. Record the contract's completion milestones, approval and receipt of funds.

Review the clause before signing

Check the percentage, calculation, release conditions and treatment of disputed work. § 757 expressly addresses prohibited retainage above the statutory cap.

Kushnick Pallaci PLLC assists with retainage and payment provisions in construction contracts and payment disputes. Keep the contract, approvals and payment ledger available for review.

General information only; project coverage and contract date matter.

Limits on Retainage in New York Construction Contracts

Updated September 7, 2026. Before negotiating retainage, check the project's statutory coverage, the contract date and the percentage actually being withheld by the owner.

Can the contractor retain more than the owner?

For covered contracts governed by the current General Business Law § 756-c, retainage may not exceed 5%, and downstream retainage may not exceed the owner's actual percentage. For example, if the owner retains 3%, the contractor cannot use a 5% subcontract clause to retain more under that provision.

The five-percent amendment applies to covered contracts entered into on or after November 17, 2023. See the enacted 2023 legislation. § 756 contains the project's cost threshold and exclusions; the rule should not be applied indiscriminately to every residential or public job.

What should a payment review include?

• The agreed retainage percentage and its statutory limit.
• The amount retained upstream and the corresponding downstream calculation.
• The date of final approval and when retainage was received.
• Any separate, documented basis for withholding a disputed amount.

Section 756-c sets the owner's release deadline at no later than 30 days after final approval of the work and provides interest for a failure to release retainage as required. A final invoice at substantial completion and final approval for retainage release are distinct issues.

Kushnick Pallaci PLLC reviews retainage and payment terms in construction contracts. For the broader statutory framework, read our updated Prompt Payment Act guide.

General information only. Review the contract and applicable statutory version for a particular project.

Retainage Escrow: A 2011 Proposal and Current-Law Context

Historical article — context updated September 7, 2026. The text below describes a proposal discussed in 2011. It should not be used as a statement of today's retainage requirements.

For covered private construction contracts, current General Business Law § 756-c addresses the retainage cap and release deadline. Its 1% monthly interest provision concerns retainage not timely released; it does not establish the proposed general interest-bearing escrow arrangement described below. Contract date and statutory coverage must be checked.

See the updated New York retainage guide and Kushnick Pallaci PLLC's construction contract review services.

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Original 2011 commentary

Assembly bill A05023, if passed, would require owners to deposit retainage sums into an escrow based interest bearing account.  The law would allow owners to keep the security of retainage until the project is complete and signed off on but would also allow the subcontractors whose money is being withheld (the retainage) to earn interest so that it is worth a bit more to them when they finally receive it.  The law would provide that retainage earns interest at the rate of 1 percent per month.  If the law is successful, that means that retainage might be a more valuable investment than the stock market!

This proposal has failed in the senate before so stay tuned to see if it makes its way into law this year.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or vtp@kushnicklaw.com