The New York real estate landscape has undergone a significant legislative change with the enactment of the Retainage Reduction Act. This new law, effective from November 17, 2023, impacts how Cooperative, Condominium, and Homeowners Association (HOA) communities handle construction contracts. Our blog post today delves into the implications of this Act, providing a comprehensive understanding for stakeholders in the real estate sector.
What Is the Retainage Reduction Act?
The Retainage Reduction Act, part of New York’s General Business Law, introduces a critical modification in construction contracts. It limits the amount of money a property owner can withhold from a contractor (known as ‘retainage’) to a maximum of 5% for contracts valued at $150,000 or more. This legislative change is aimed at improving the financial dynamics between property owners and contractors.
Key Aspects of the Act:
- Maximum Retainage Limit: Property owners, including HOAs, can now only withhold up to 5% of the contract sum as retainage.
- Prompt Release of Retainage: The law mandates the release of retainage within 30 days following the final approval of work.
- Penalties for Noncompliance: A 1% interest per month is charged on overdue retainage.
- Critical Role of Substantial Completion: The Act places significant emphasis on the term ‘substantial completion’ as defined in the contract, which dictates when final payments are due.
- Legal Oversight: Legal consultation is highly recommended for drafting and reviewing construction contracts under this new law.
In a scenario under the New York State Senate Bill S3539, you might have:
- Company Owner: Enters into a construction contract with the General Contractor.
- General Contractor: Agrees to build the project, and in turn, hires a Subcontractor.
- Subcontractor: Completes a specific part of the project.
The Company Owner can retain a maximum of 5% of the contract sum as retainage. Upon substantial completion, as defined in the contract, the retainage must be released within 30 days after final approval, subject to a penalty for delays. This process is mirrored between the General Contractor and the Subcontractor.
For comprehensive details, see the full bill on the New York State Senate website.
Impact and Adaptation:
The Retainage Reduction Act marks a transformative shift in construction contract management. Cooperative, Condominium, and HOA communities must adapt to these changes for successful project execution and financial stewardship. This involves revising existing contracts to comply with the new retainage limit, clearly defining ‘substantial completion’ in contracts, and seeking legal expertise in contract drafting and review.
The Retainage Reduction Act is a pivotal step towards more equitable and efficient financial dealings in New York’s construction sector. By understanding and adapting to these changes, communities can ensure smoother project executions and safeguard their financial interests. This legislative development underscores the importance of staying informed and proactive in the ever-evolving real estate landscape.
Note to Readers:
This blog post is intended for informational purposes only. For specific legal advice regarding the Retainage Reduction Act and its application to your projects, consulting a legal professional is recommended. For more detailed information, refer to the full text of the bill.