On December 19, 2025, Governor Kathy Hochul signed Senate Bill S5655 further amending New York’s Prompt Payment Act to render void any provision in a private construction contract exceeding $150,000 that requires retainage of more than 5% of the contract sum.[1]
More than two years ago, on November 17, 2023, Hochul signed Senate Bill S3539, which amended Section 756-c of the New York General Business Law to cap the amount of retainage that may be withheld from a contractor or subcontractor on a private construction contract of $150,000 or more at 5% of the contract sum.[2]
Before the December 19, 2025, amendment, owners and general contractors could effectively circumvent the retainage cap by relying on Section 756-a of the New York General Business Law, which allows the terms of a construction contract to supersede the Prompt Payment Act “except as otherwise provided in [the] article.”[3] Under the new legislation, however, any contractual provision that does not comply with the retainage requirements in Section 756-c is void and unenforceable.[4]
Notably, based on the plain language of the statute, the 5% retainage cap applies to the total contract sum, not to individual progress payments. As a practical matter, this still permits owners to withhold 10% retainage on progress payments for the first 50% of a contractor’s work, provided that retainage withholding is reduced to 0% on future progress payments once 50% of the project has been completed.
In light of these changes to New York’s retainage requirements — which took effect immediately and apply to all contracts entered into on or after December 19, 2025 — owners, contractors, and subcontractors should carefully review their construction agreements and consult experienced construction counsel before negotiating or revising retainage provisions.
[1] 2025 NY Senate-Assembly Bill S5655, A5405
[2] 2023 NY Senate-Assembly Bill S3539, A4167
[3] General Business Law § 756-a
[4] General Business Law § 757
