A newly-enacted amendment to the New York General Business Law is designed to reduce delays in final payments to contractors, limit the amount of the contract sum (“retainage”) that can be withheld by and revises the triggering event for the contractor’s entitlement to final payment.

The new law applies to all private commercial construction projects valued at $150,000 or more. The law’s sponsors point to severe financial burdens currently faced by contractors and subcontractors for completed work that can go uncompensated for as long as a year after the completion of a project. Since contractors must meet their own financial obligations to employees, suppliers, insurers and others, the slim margins in this industry result in a contractor’s “profit” only being achieved by receipt of these retainage payments. Any disputes of entitlement thereto, or delays in payment, can easily become existential circumstances.

The amendment stipulates owners, general contractors and subcontractors cannot withhold retainage of more than 5% of the contract sum (and in no case may any contractor’s retainage exceed the percentage retained by the owner) which retainage must be released within 30 days of “substantial completion” of the work (as defined or contemplated under the applicable contract).

This differs from previous law, which allowed an owner to retain “a reasonable amount” as retainage and stipulated that contractors could not submit for final payment until all the contractor’s contractual obligations had been met, resulting in disputes and delays. The new law also establishes timelines for the notification of items to be completed by a contractor or subcontractor, with the intention of reducing delays in the release of retainage.

Failure to release the retainage payment as required would subject the owner or general contractor to interest of 1% per month from the date the retention was due and owing.

The effective date of the new law is a bit ambiguous. The new legislation indicates that it is to “take effect immediately. The bill was signed into law by Governor Hochul on November 17, 2023, but the text of the bill bears a date of January 31, 2023. All developers, project owners and contractors should review their contracts to ensure compliance.

Harris Beach’s Real Estate Developers Industry Team is tracking this and other legislative and regulatory changes throughout New York. If you would like assistance reviewing your contracts or other related items, please reach out to attorney Marco D. Silva at (516) 880-8397 and msilva@harrisbeach.com or to the Harris Beach attorney with whom you most frequently work.

This alert is not a substitute for advice of counsel on specific legal issues.

Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as Washington D.C., New Haven, Connecticut and Newark, New Jersey.