Builder Retainage (TX)

11 years ago

Hi there,

Looking for some insight into retainage. I'm an attorney, but new to TX/TX law and am not a construction attorney. I understand that I need to retain 10% of the contract amount to protect myself from mechanics' liens as this will limit my liability to that 10%. My builder wants me to release the retainage every month (30 days from the 90% payment invoice) after he provides me with lien releases from the subs. I am concerned that this doesn't protect me because although I am protected from those subs who signed the lien releases, what about the last sub?

For example, say we have a $500k contract. Retainage on the job would be $50k. If I am releasing as we go, I won't have the $50k pool to pay the painter his $25k, only the 10% on the painter's $25k ( so $2500). Or does the payment along the way reduce the total contract value/value of the work, so by the time the painter comes along I'm only responsible for a $25k portion of the work? That's the only way it makes sense to me but that doesn't seem right.

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Comments (4)

weedyacres
11 years ago
I can speak to commercial construction contracts, as I've been party to quite a few in multiple states. Typically they have a 10% retainage on everything until the entire job is done.

I would want conditional lien releases when you pay him the 90% and unconditional lien releases upon final payment.
User
11 years ago
Retainage is often gradually reduced in the last months of the project. The reduction is normally itemized separately from the normal retainage to avoid confusion.
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sjhockeyfan325
11 years ago
I work in commercial real estate and often advise on this issue. We never release the full 10% retainage before we have a full set of unconditional lien releases -- no gradual reductions at the end of the project.
PRO
Charles Ross Homes
11 years ago
Retainage is typical in our area for commercial construction, but it is atypical for residential construction projects.

It's standard practice in our area for lenders to request a lien waiver signed by us as the builder at each draw request and a final waiver/release of liens at final payment. In Virginia, suppliers and subcontractors are required to register with the mechanic's lien agent (attorney or title company) listed on the building permit before providing materials or performing work that could become the subject of a mechanic's lien. The mechanic's lien agent can check with everyone registered before approving payment of a draw request if they feel they need to. You would be well served to check with an experienced mechanic's lien agent in Texas before entering into any contract.

Good luck with your project.