NY Construction Law Alert: Legislation Aimed at Enforcing 5% Retainage Limit Passes Senate Following Assembly Approval, by Andrew Richards, Esq., 6-13-25

On the heels of Assembly approval last month, the New York State Senate followed suit on Wednesday, June 11, passing legislation that would make construction contracts requiring more than five percent retainage unenforceable and void.

This bill, which passed the Assembly on May 22, 2025, seeks to further clarify and enforce the five percent retainage limit set by state law in 2023. That law, signed by NY Governor Kathy Hochul on November 17, 2023, limited the amount of retainage that can be held from general contractors and subcontractors on private construction contracts of $150,000 or more to no more than five percent. 

This recent legislation (S.5655/A.5405) specifically amends section 757 of the general business law to add contract language requiring retainage in excess of five percent of a contract sum as a void provision in a construction contract.

Background

 By limiting the amount of retainage to a maximum of five percent, Chapter 657 of the Laws of 2023 brought private construction contracts in line with state construction contracts. While it was the clear intent of the legislature to ensure that qualifying projects capped retainage at five percent, there are still many construction projects in which general contractors offer retainage at 10% or higher, according to the bill summary. By updating the general business law to render any clause requiring retainage in excess of five percent as void, the law aims to ensure compliance with the spirit of the law.

The bill still needs the Governor’s approval. Kaufman Dolowich will continue to monitor developments.

Author: Andrew Richards, Co-Chair of KD’s Construction Practice Group and Co-Managing Partner of the firm’s Long Island Office