Menu

Retainage Options

TexasPreliminary Notice

We have paid $220,000 and still have $67,000 to go. The GC did not provide us the DISCLOSURE STATEMENT REQUIRED FOR RESIDENTIAL CONSTRUCTION CONTRACT. We did not know about Statutory Retainage and thus have not been withholding. How do I make up for this? I thought lien waivers up to this point from all subs and we would withhold 10% from this point forward. Or if will not provide lien waivers (pretty sure he will not) can we do 50% on the next 3 draws and 10% on each draw following... this would end with 10% of the contract price being retainage by the end of the build.

10 replies

May 4, 2021

Hello!

So the rule is that retainage should be withheld. Oftentimes, retainage is not withheld. Don't worry, no one is in trouble. If the contractor is doing a good job, everything is fine.

If you want to be cautious, however, withhold $22K from the last draw request and let the contractor know that everything is fine but the last $22K will be paid upon completion of any final items (punchlist) or final walkthrough. They are used to seeing retainage and a good contractor will have no fear of their work not holding up. If you want, you can get a lien waiver signed by him stating that all subcontractors have been paid.

E. Aaron Cartwright III
214.789.1354
Aaron@EACLawyer.com

0 people found this helpful
Helpful
May 5, 2021
Aaron, things are not fine. We were notified in mid March that a subcontractor we paid our builder to pay in January was now starting the paperwork to file a lien. It had been 2 months since we paid the GC. Then we learned of another bill that we paid the GC for in December that was still unpaid in April. I want to know how, or what percentages to pull my Retainage to beef up my protection, sooner than later.
0
Report Spam
May 5, 2021

The legal analysis would start with a review of your contract, and then extend to the contractor's applications for payment, and to the communications which have occurred.

If your contract does not provide for retainage, and the contract does not satisfy the requirements of Texas Property Code sections 53.254, et seq., then no contractor or subcontractor or supplier could file a valid mechanic's lien on your property (assuming that you own the property, and intend to live there, making the property your homestead).

Retain a construction attorney to evaluate the contract and to see what the default remedies are for the contractor's failure to pay for his labor and materials.

Good luck.

0 people found this helpful
Helpful
May 5, 2021

Hello,

There is still $67,000 in the job. Pay the subcontractor, let the GC know you are paying the subcontractor, and keep the paperwork to subtract from the GC's payment. It's called a backcharge.

Retainage on this size of a job would have been $28,700. If the GC failed to pay $28,700 in subcontractor and equipment money, there are going to be massive ramifications for him. In addition, there are multiple things it sounds like the contractor failed to do that would make it very difficult, if not impossible, for the subcontractors to maintain a lien against your property. That would need to be evaluated, however.

-Aaron 

0 people found this helpful
Helpful
May 5, 2021
Do we have a legal right to request and obtain lien waivers from all subs and suppliers? Can we demand / require them, legally? Can we go to the subs and suppliers directly. We requested lien waivers from all but the builder refuses and will only provide an All Bills Paid Affidavit signed by him. We are not worried about him putting a lien against us. We have paid him over $220,000. We want lien waivers from all subs and suppliers. We are paying cash and do not have a bank to play middle man.
0
Report Spam
May 6, 2021
The builder has told me he will not allow me to hold retainage. He knows what retainage is an has deliberately created a contract that excludes it. What recourse do I have?
0
Report Spam
May 6, 2021

The legal analysis would start with a review of your contract, and then extend to any communications which have occurred. Keep the Golden Rule in mind - he who has the gold makes the rules. If the contractor has failed to abide by the contract, then you may exercise the default remedies.

Retain a construction attorney to evaluate your legal situation and to provide advice.

Good luck.

0 people found this helpful
Helpful
May 6, 2021
I mentioned wanting to speak with the builder about retainage. The builder told me I cannot hold retainage. I don’t understand, It is state law?
0
Report Spam
May 6, 2021

Hello,

It is definitely state law. Texas Property Code:
Sec. 53.101. REQUIRED RETAINAGE. (a) During the progress of work under an original contract for which a mechanic's lien may be claimed and for 30 days after the work is completed, the owner shall retain:
(1) 10 percent of the contract price of the work to the owner; or
(2) 10 percent of the value of the work, measured by the proportion that the work done bears to the work to be done, using the contract price or, if there is no contract price, using the reasonable value of the completed work.
 

There are two issues at play here. 1) the relationship with the builder. This cannot be managed by us, the attorneys. You have to make the calls for what gets the job done with this person being not exactly the best. 2) the lack of faith in the builder to pay the bills. From where I sit, if you short him on a draw, you are likely to not get the rest of the work completed. I've mentioned before that withholding the last 10% of the total project until final punchlist items are complete may be a good idea. This way you have leverage. You tell him that he can have his last 10% once the job is done and he's provided an affidavit of payment.

-Aaron

0 people found this helpful
Helpful
May 6, 2021

You have not specified your factual circumstances as to whether the project involves your homestead (meaning you own the home and live there).  

If the contractor did not have you sign a valid homestead mechanic's lien contract (meaning it contained the required statutory warnings specified by Texas Property Code sections 53.254, et seq., was signed by husband and wife (if married), and was recorded in the county real property records, etc.), then no one (contractor, subcontractor, supplier, etc.) on your project could file a valid mechanic's lien.

If no one can file a valid mechanic's lien, then you do not have to retain the 10% retainage. But, retaining 10% in retainage is certainly a good idea.

So, does the project involve your homestead?

0 people found this helpful
Helpful