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Attorney Bradley H. Rice

Clear as mud—changes to the retainage rules

Clear as mud—changes to the retainage rules

Current law requires the owner of a construction project to retain 10 percent of each payment to the general contractor for the benefit of the subcontractors working on the project. When the project is completed, the owner releases the retained funds to the general contractor, who passes them on to its subcontractors and suppliers. For contracts entered into after September 1, 2011, significant changes were made in the statutory requirements for perfecting claims against both “statutory retainage” and contractual retainage”. Two of the more significant changes are set forth below.

Previously notice of contractual retainage had to be given by subcontractors and suppliers to the owner by the 15th day of the second month following the first delivery of materials or performance of labor after the claimant has agreed to contractual retainage. Because of the early notice requirement, many subcontractors and suppliers fail to timely perfect lien claims for the contractual retainage withheld from their monthly progress payments. The new law now extends the date to give the owner notice to the 30th day after the claimant’s work is completed, terminated or abandoned, or the original contract is terminated or abandoned (whichever comes first). Therefore, a subcontractor can now wait until its contract is complete before sending notice.

The second major change concerns the filing of the lien affidavit. Under the prior law, a claimant had to file its lien within 30 days after final completion of the project. This led to instances where even if a subcontractor at the end of the project had given timely notice, the filing its lien affidavit by the 15th day of the 4th month following its last month of work was too late. Under the new law a subcontractor will now have until the 15th day of the 4th month following its last month of work to file a lien on is retainage. However, if the owner sends the claimant notice of an affidavit of completion then the lien must be filed by the 40th day after the dated stated in the affidavit of completion. In addition, if the owner sends a written demand to the claimant for it to file a lien affidavit then the deadline is shortened to the 30th day after the date the owner sent the notice.

These are just two of the changes I have outlined regarding the perfection of a retainage claim. However, please know that there are many other changes to those rules that cannot be adequately covered in this article. The best way for you to preserve a retainage claim is to consult with a knowledgeable construction attorney.

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