New York State 5% Retainage Law — What Contractors Need to Know

What Changed?

New York State has closed the loophole that previously allowed owners and contractors to contract around the 5% retainage cap on private construction projects.

As of December 19, 2025, any provision requiring retainage over 5% is void and unenforceable for covered private construction contracts.

This change strengthened earlier reforms passed in 2023 and is now fully enforced in 2026.

Who Does the 5% Retainage Rule Apply To?

The law applies to:

• Private construction contracts

• Total contract value of $150,000 or more

• Owners, general contractors, and subcontractors

It applies down the chain — an owner cannot withhold more than 5% from a GC, and a GC cannot withhold more than 5% from a subcontractor.

✅ Public works projects follow different retainage rules.

When Must Retainage Be Released?

Under New York’s Prompt Payment Act:

• Retainage must be released no later than 30 days after final approval of the work

• Failure to release retainage on time may trigger interest penalties of 1% per month [n

This makes timely close‑out documentation and approvals more important than ever.