In the world of construction, retainage is a portion of funds withheld from payments made to contractors and subcontractors until work is completed. Retainage is one of the tools used by owners and developers to ensure that a project is timely, fully, and correctly completed. On Nov. 17, 2023, longstanding retainage customs were upended after amendments to Sections 756-a and 756-c of New York's Prompt Payment Act (the "Act") were signed into law by Gov. Kathy Hochul, with immediate effect. The Act's amendments pertain specifically to retainage that is permitted to be withheld from payment and invoicing final payments by contractors and subcontractors in covered construction contracts. Although the amendments took effect upon signing, they only apply to contracts entered into on or after Nov. 17, 2023.
What do you need to know to cement your understanding of the new law?
In light of the amendments to Sections 756-a and 756-c of the Act, whether the retainage or payment terms of a loan agreement or construction contract comply with the amended statute may not be so straightforward. New drafting considerations, as well as loan structuring, will be key and may require a new approach to financing projects in New York.
Originally published in the New York Business Journal.
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