New York retainage law: a plain-English guide for contractors

What is retainage in construction?

Retainage (also called retention) is the part of each progress payment the owner holds back until the work is finished. The general contractor usually passes the same percentage down to its subcontractors, so everyone in the chain has money held back.

"5% retainage" means that on a $200,000 pay application, $10,000 is withheld and $190,000 is paid. Over a long job the held amount adds up: on a $4 million subcontract at 5%, $200,000 is sitting with someone else by the end of the work. On your books it's a retainage receivable. On the GC's or owner's books it's retainage payable.

Retainage exists to give the owner leverage to get the work finished and to protect against unpaid subcontractors and suppliers filing liens. It also means contractors finance part of the project with their own earned money, often for a year or more.

New York's 5% retainage cap on private work

New York's prompt payment act for private construction is Article 35-E of the General Business Law. Under GBL 756-c, an owner may retain no more than 5 percent of the contract sum. A contractor or subcontractor may also retain no more than 5 percent from the tier below, and never more than the percentage the owner actually retains.

• It came in with the 2023 amendment.Senate Bill 3539 (Chapter 657 of 2023), signed November 17, 2023, set the 5 percent cap. It took effect immediately and applies to contracts entered into on or after that date.
• Higher retainage clauses are now void.Senate Bill 5655 (Chapter 654 of 2025), signed December 19, 2025, added retainage above 5 percent of the contract sum to the list of void and unenforceable contract terms in GBL 757. That closes the argument that parties could simply agree to 10 percent.
• Older contracts. The 2025 change applies to contracts entered into on or after December 19, 2025. Some commentators read it as also affecting enforcement on contracts signed after November 17, 2023. If your contract predates December 2025, check with counsel.
• Other void terms. GBL 757 also voids clauses that put the contract under another state's law or forum, bar suspending work for non-payment, take away expedited arbitration, or set payment terms that differ from the statute.

Which private New York jobs are covered?

Article 35-E applies to a "construction contract" as defined in GBL 756: an agreement to build, alter, maintain, move or demolish a building or structure, or to excavate or develop land, where the aggregate cost of the project equals or exceeds $150,000. The $150,000 test is the cost of the whole project, not the size of your subcontract.

The definition excludes:

• Public works projects of the state or a municipal corporation (those follow the public rules below).
• Individual one-, two- or three-family homes.
• Residential developments of 100 or fewer one- or two-family units.
• Residential projects of 4,500 square feet or less.
• Residential projects under 75 units that get federal, state or municipal assistance for households at or below 125 percent of the HUD area median income.

The exclusions have more detail than this summary. If your job is residential, read the statute text or ask counsel.

How long can retainage be held in New York?

Who pays whom: Deadline

Owner to contractor: No later than 30 days after final approval of the work (GBL 756-c)

Contractor to subcontractor: A proportionate share after the contractor receives retainage from the owner. The statute charges interest if it isn't released, and progress and final payments are due 7 days after the contractor receives good funds (GBL 756-a).

Final invoice: The contractor may submit a final invoice for payment in full upon substantial completion, as the contract defines it (GBL 756-a)

Two different clocks matter. You can invoice for the balance at substantial completion. The 30-day retainage deadline runs from final approval of the work. Under GBL 756-a, the owner has 12 business days to approve or disapprove an invoice and must pay within 30 days after approval. If payment depends on a lender, it's due 7 days after the owner receives good funds.

Interest and late payment in New York

If an owner fails to release retainage on time, or a contractor or subcontractor fails to pass a proportionate share down after receiving it, the party holding it owes interest at 1 percent per month from the date it was due (GBL 756-c). Late progress and final payments carry the same 1 percent per month rate under GBL 756-b. That section also lets a contractor or subcontractor suspend work on 10 calendar days' written notice when undisputed invoices go unpaid, and provides expedited arbitration.

That late-payment interest only starts once retainage is overdue. While retainage is properly held, Article 35-E doesn't require it to sit in a separate account or earn anything for the contractor.

The money involved is real. $500,000 of retainage held for 18 months earns about $28,500 at 3.7% compounded monthly. Where nothing requires the money to earn interest for the contractor, that interest usually stays with whoever holds it.

Retainage that earns interest on New York projects

New York caps retainage at 5 percent, but it doesn't make held retainage earn anything for the people who earned it. Retain-Edge is built to change that: retainage held in a segregated, interest-bearing account at an FDIC-insured partner bank, a balance for every contractor, and the interest paid to the GCs and subcontractors who earned it. Retain-Edge never holds, lends or invests the funds, and is now enrolling pilot projects.

Get early accessCalculate your interest

Public projects in New York

Article 35-E doesn't apply to public work. Two parallel statutes set retainage on public jobs: State Finance Law 139-f for the state, public departments and public benefit corporations, and General Municipal Law 106-b for political subdivisions and districts. The core rules match.

• 5 percent, sometimes 10. The public owner may retain no more than 5 percent of each progress payment. It may retain up to 10 percent only if it doesn't require both a performance bond and a labor and material bond, each in the full contract amount.
• Same rule for subs. The contractor may retain no more than 5 percent from each sub payment, or up to 10 percent if the sub was unable or unwilling to provide full performance and payment bonds when asked before the subcontract.
• Nothing held on the final balance. The contractor may retain nothing from the share of the owner's final balance payment that is owed to a sub or supplier.
• Substantial completion. The contractor requisitions the remaining contract balance at substantial completion. Within 45 business days of substantial completion the owner must give a written list of remaining items, and the owner then pays the balance less two times the value of the remaining items and any amount needed to cover unresolved claims, liens or judgments.
• Flow-down and interest. The contractor must pay subs and suppliers within 7 calendar days of receiving payment, with interest after that at the GBL 756-b rate.
• Payment deadlines. Under GML 106-b, "promptly pay" means within 30 days, or 45 days where an elected body must approve, excluding legal holidays. That definition doesn't apply to New York City, which has its own payment rules. Public authorities follow Public Authorities Law 2880, which requires payment within 30 calendar days of an invoice or interest at the overpayment rate.

Securities instead of cash retainage. On state contracts, State Finance Law 139 lets the contractor withdraw retained amounts by depositing approved obligations (such as U.S. Treasury securities or New York bonds) with the State Comptroller or an approved bank, and the interest on them is paid to the contractor. General Municipal Law 106 gives the same right on contracts of political subdivisions, with deposits made with the fiscal officer or an approved bank or trust company.

New York Lien Law trust funds

Under Article 3-A of the Lien Law, construction money is trust money. Lien Law 70 makes funds received by an owner, a contractor or a subcontractor in connection with an improvement of real property assets of a trust. The contractor or subcontractor is the trustee of the funds it receives.

Lien Law 71 says what those funds are for. A contractor's or subcontractor's trust assets must be applied to the claims of subcontractors, laborers, materialmen, design professionals and related taxes and benefits from the improvement. When a GC receives retainage that belongs to a sub, it receives it as a trustee, not as its own money.

How to get retainage released faster

1. Check the percentage before you sign. On covered private jobs, anything above 5 percent is void. On public jobs, ask whether bonds are required, since that decides whether 10 percent is allowed.
2. Define substantial completion and final approval. The contract's definitions start the clocks. Make sure they're clear and achievable.
3. Invoice at substantial completion. On private work you're entitled to submit a final invoice then. On public work, submit the balance requisition and push for the remaining-items list within 45 business days.
4. Build the closeout package as you go. Collect warranties, O&M manuals, as-builts and certifications with your monthly pay apps instead of chasing them at the end.
5. Track the 30 days and send notice. Once retainage is overdue, interest runs at 1 percent per month. Put the due date and the interest claim in writing.
6. On public work, ask about securities. State Finance Law 139 and General Municipal Law 106 let you swap cash retainage for approved securities and keep the interest.

New York retainage FAQ

What is the maximum retainage in New York?+

On covered private jobs, 5 percent of the contract sum, at every tier (GBL 756-c). On public jobs, 5 percent of each progress payment, or up to 10 percent where full performance and payment bonds aren't required (State Finance Law 139-f and General Municipal Law 106-b).

Can a contract set retainage at 10 percent on a private New York job?+

Not on a covered job signed on or after December 19, 2025. GBL 757 now makes a clause requiring retainage above 5 percent void and unenforceable. For contracts signed between November 17, 2023 and December 19, 2025, the 5 percent cap still applies but check with counsel on enforcement.

Which private projects does the 5 percent cap cover?+

Projects with an aggregate cost of $150,000 or more, other than state and municipal public works and the residential projects excluded in GBL 756, such as one- to three-family homes.

When must retainage be released in New York?+

On private work, no later than 30 days after final approval of the work, and the contractor or sub must pass a proportionate share down after receiving it. On public work, the owner pays the balance after substantial completion less two times the value of remaining items.

What interest is owed on late retainage in New York?+

On private work, 1 percent per month from the date retainage was due (GBL 756-c). On public work, subs paid late by the contractor get interest at the GBL 756-b rate, and late public owner payments carry interest under their own statutes.

Does New York require retainage to earn interest?+

Not on private work. Article 35-E only charges interest once retainage is late. On state and municipal contracts, the contractor can deposit approved securities in place of cash retainage and collect the interest on them (State Finance Law 139 and General Municipal Law 106).

Is retainage a trust fund in New York?+

Funds an owner, contractor or subcontractor receives for an improvement of real property are trust assets under Lien Law 70, and must be used to pay subs, laborers and suppliers on the project under Lien Law 71.

Retainage guides for other states

California5% cap · 2%/mo late penaltyConnecticut5% cap · mandatory escrowFlorida5% public cap · 2%/mo lateGeorgia5% public cap · 10-day flow-downKentucky10%/5% caps · escrow at $2M+LouisianaEscrow at $50K+ · 10%/5% publicNorth Carolina5% public cap · 50% stopOregon5% cap · retainage bondsTennessee5% cap · escrow at $500K+Texas10% reserve · public caps