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What happens when the terms and conditions that the construction lender are greater then the current law?

IllinoisRetainage

In the state of Illionois on private funded projects there is a new law that states construction retention on building projects be reduced at 50% of the project. What happens when the terms and condistions of the construction loan are greater and require the constructio retention to be reduced at 90%

1 reply

Mar 2, 2020

According to Illinois law, "When a contract is 50% complete, retainage withheld shall be reduced so that no more than 5% is held. After the contract is 50% complete, no more than 5% of the amount of any subsequent payments made under the contract may be held as retainage." So, it would be ok for a contract to not reduce the amount of retainage withheld in progress payments after the project is 50% complete as long as the retainage amount does not exceed 5%. In the event that a contract requires more than 5% retention until 90% project completion (or any percentage of contract completion greater than 50%), that provision would be directly in contravention to statutory law and the public policy of the state. In these cases, absent some other provision of law allowing for the contract provision as written, the statutory prohibition would control and the particular clause would be rendered invalid. Generally, construction contracts (and other contracts) contain "severability" clauses, which work to ensure that if a particular portion of a contract is determined to be invalid and unenforceable that only that provision is stricken, rather than the whole contract being invalidated. However, in some circumstances, absent a severability clause, inclusion of an improper clause could invalidate the contract as a whole.

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