Introduction:
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.
Scenario Illustration:
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.
Conclusion:
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.
how do you handle this during a dispute?
Hello Ron,
Thank you for your insightful question regarding the handling of retainage during a dispute under the Retainage Reduction Act. Navigating disputes in this context requires a careful approach.
Firstly, it’s important to adhere to the stipulations of the Act, even during disputes. The Act sets clear guidelines for the maximum retainage limit and the conditions for its release. In the case of a dispute, parties should refer to their contract, as it should outline the procedure for handling disagreements, including those related to retainage.
Moreover, during a dispute, it’s crucial to communicate effectively with all involved parties and attempt to resolve the issue through negotiation or mediation. If the dispute escalates, legal intervention might be necessary. In such cases, the retainage may be held until the dispute is resolved, but this should be done in accordance with the terms of the contract and the Act.
It’s also advisable to consult with a legal professional who is knowledgeable about New York’s General Business Law and the specific provisions of the Retainage Reduction Act. They can provide guidance tailored to the specifics of your situation.
In summary, the key to handling disputes under this Act is a combination of adhering to legal and contractual obligations, effective communication, and, when needed, seeking professional legal advice.
Best Regards,
Newgent Property Management Team
Try Newgent Demo
We have been unaware of this – thanks for the blog. this might actually be helpful that takes the guesswork out of it
Dear Setca,
Thank you for your response to our blog post on the Retainage Reduction Act in New York’s real estate sector. We’re glad to hear that you found the information useful and that it could potentially help in taking the guesswork out of dealing with construction contracts. Our goal is to keep our readers informed about significant legislative changes that impact the real estate community, especially those that affect Cooperative, Condominium, and Homeowners Association (HOA) communities.
Understanding the Retainage Reduction Act is crucial for anyone involved in the real estate sector in New York, particularly when it comes to the financial aspects of construction contracts. As you mentioned, this legislation could indeed be a helpful tool in streamlining financial interactions between property owners and contractors. The cap on retainage to a maximum of 5% and the requirement for prompt release of retainage within 30 days following final approval are particularly important aspects that aim to improve the financial dynamics in construction projects.
We recommend that stakeholders in the real estate sector, like yourself, consider revising existing contracts to ensure compliance with this new law. It’s also advisable to clearly define ‘substantial completion’ in your contracts and to seek legal expertise for drafting and reviewing these contracts. Staying informed and proactive about such changes is key to successful project execution and financial stewardship in the dynamic landscape of New York real estate.
If you have any further questions or need detailed advice specific to your projects, we strongly recommend consulting with a legal professional. For more comprehensive details, you can also refer to the full text of the bill on the New York State Senate website.
Thank you once again for your interest and engagement. We are here to provide you with the latest updates and insights in the real estate sector. Keep following our blog for more informative posts!
Best regards,
Newgent Property Management Team
Thank you so much!
Hello Zain,
Thank you for your positive feedback! We’re thrilled that you found our article on the Retainage Reduction Act in New York’s real estate sector informative. If you have any further questions or need more insight on this topic, please don’t hesitate to ask. Our team is always here to provide you with the latest information and support to navigate the real estate landscape effectively.
Best regards,
Newgent Property Management Team
Very helpful. When new things are released, we need to know about them!
Hello Jakes,
We’re delighted to hear that you found our post on the Retainage Reduction Act in New York’s real estate sector useful. It’s our goal to keep our readers informed about the latest legislative changes and how they impact the community. If you have any more questions or need further insights, feel free to ask. We’re here to help!
For those who are interested in experiencing our services firsthand, Try Newgent Demo.
Best Regards,
Newgent Property Management Team