Texas Retainage Requirements
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10% Retainage Limit
For work in which a mechanic’s lien may be claimed, the property owner must retain 10%.
30 Day Pay Period
The time period to withhold retainage is very complicated and not well defined in Texas law. It appears that 30 days after work is completed retainage must be released.
There is a Process to Recover
Yes, specific notces and timing requirements apply to the recovery of retainage in texas.
Not Held In Escrow
In Texas, contractors and owners do not need to hold retainage funds in a separate escrow account.
For most projects, no specific maximum rate is set out.
Statute is unclear, but it appears to depend on the contract. Most likely released upon completion of work under the contract.
There is a Process to Recover
Yes, while statute is not entirely clear, a notice must be submitted to claim retainage.
Retainage serves two general purposes: (1) To provide an incentive to the contractor or subcontractor to complete the project; and (2) To give the owner some protection against problems like liens, contractual defaults, delays, and more. In most states, laws exist to regulate how the parties use the retainage concept, mostly protecting some parties against abuse of the tool from others. The following are resources, legal information, and frequently asked questions about Texas’ retainage requirements. The Texas retainage statutes are reproduced below on this page.
Texas has very complex rules and requirements surrounding retainage, just like everything else surrounding construction payment. The deadlines for notices and claims with respect to retainage in Texas are tricky, and can be modified by other parties’ actions.
For private projects, the rules that apply to a Texas Notice of Contractual Retainage can be found in § 53-057. This notice is an additional notice requirement separate from the “monthly” notices that must be given by Texas construction participants who do not have a contract directly with the property owner, and separate from actually making a claim on the retained fund. The Notice of Contractual Retainage must be given to the owner (and to the original contractor if there was no direct contractual relation between the original; contractor and the party giving notice):
“not later than the earlier of:
(1) the 30th day after the date the claimant’s agreement providing for retainage is completed, terminated, or abandoned; or
(2) the 30th day after the date the original contract is terminated or abandoned.
So, what this means is that the notice must be provided within 30 days of the end of the claimant’s work, unless the original contract was terminated or abandoned prior to that date, in which case the deadline is shortened to 30 days after the termination or abandonment of the original contract.
This is the only “preliminary” notice required for a claim of lien on the retained funds (although, note that other notices are required for a lien with respect to the other amounts due). Also note that this is a deadline, there is nothing in Texas statute that prohibits sending the Notice of Contractual Retainage at any point prior to that deadline, so it may be sent at the start of the project to make sure that the deadline does not slip by.
In order to have a lien against the retained funds, and make the owner personally liable for their payment, the claimant must give the Notice of Contractual Retainage as set forth above, and file a lien affidavit. The lien affidavit must be filed by either:
not later than the 30th day after the earlier of the date:
a) the work is completed;
b) the original contract is terminated; or
c) the original contractor abandons the project
(if the lien affidavit is solely on contractual retainage)
not later than the earliest of:
(i) the 15th day of the 4th month after the claimant’s last furnishing of labor or materials (3rd month if the project was residential – yes, retainage requirements apply to residential projects, too) (ii) the 40th day after the completion date stated in an affidavit of completion provided the owner sent the claimant notice of an affidavit of completion in the time and manner required; (iii) the 40th day after the date of termination or abandonment of the original contract, if the owner sent the claimant a notice of such termination or abandonment in the time and manner required; or (iv) the 30th day after the date the owner provided the claimant with a written demand (meeting the statutory requirements) for the claimant to file the affidavit claiming a lien.
That’s a lot of tricky information to keep straight to make sure deadlines aren’t missed.
Broken down a bit more simply:
- If the claim is on retainage only the affidavit of lien may be filed 30 days after the job is done (unless the original contractor was terminated or abandoned the project, in which case the deadline is shorted to 30 days from that date).
- Otherwise, the affidavit of lien must be filed by the general lien filing deadline (unless an affidavit of completion, notice of termination or abandonment, or a demand to file affidavit of lien is provided to the claimant).