New York Enacts Legislation Rendering Retainage Above 5% Void in Private Construction Contracts, by Andrew Richards, Esq., 12-22-2025

On December 19, 2025, Governor Kathy Hochul approved legislation (A.5405/S.5655) amending General Business Law (“GBL”) § 757 to render void any provision in a private improvement construction contract that requires retainage in excess of five percent.

This legislation takes effect immediately and is intended to reinforce the existing five‑percent retainage cap established in 2023 under the Prompt Payment Act (GBL § 756-c) for covered private improvement construction contracts.  Moreover, the legislation applies to an action brought to enforce or defend against the enforcement of void terms of the contract only where the contract was entered into after November 17, 2023, which affects certain contracts that are ongoing.

Following the 2023 amendments to the Prompt Payment Act, many owners, subcontractors and general contractors believed that section 756-c of GBL already limited retention to five percent for covered private improvement construction contracts of $150,000 or more.  However, because that limitation was not included among the void provisions set forth in GBL § 757, owners and general contractors were able to circumvent the statutory cap through contractual provisions requiring higher retainage.

With the enactment of this legislation, any contract provision requiring retainage in excess of five percent is now expressly deemed void under GBL § 757. As a result, owners and general contractors may no longer rely on contractual language to impose retainage exceeding that cap on qualifying private improvement projects.

Owners, general contractors, and subcontractors involved in qualifying private construction projects in New York should promptly review and revise their standard form agreements and any active contracts to ensure compliance with the amended statute. Retainage provisions that exceed the statutory limit may be invalidated, potentially resulting in payment disputes and exposure to statutory interest.

Author: Andrew Richards, Co-Chair of the Construction Law Practice Group and Co-Managing Parter of KD’s Long Island office