Retainage

Retainage is a portion of each construction payment withheld by the owner (or by an upper-tier contractor from a subcontractor) until project completion. Retainage serves dual purposes: (1) ensuring the contractor or subcontractor's continued performance through final completion; and (2) providing a fund from which lien claims and final-completion items can be paid. Texas law requires owners to reserve 10% of payments to original contractors for 30 days after final completion. House Bill 2237 (effective January 1, 2022) reformed the terminology, what was previously called "statutory retainage" is now "reserved funds," and "retainage" now refers only to contractual retainage held within the contracting chain.

Owner's reserved funds obligation (post-HB 2237)

Section 53.101 requires the owner of property being improved to retain 10% of the contract price (or value of the work performed if no contract price) during the progress of the work. The reserved funds must be held for 30 days after final completion, termination, or abandonment of the original contract, providing a window during which subcontractors can perfect lien claims against the reserved funds before they are released to the original contractor.

Owner's liability for failure to reserve

If the owner fails to maintain the required reserved funds, the owner becomes personally liable to qualified lien claimants for the amount that should have been reserved, up to the reserved-funds amount. Section 53.105 makes this liability direct and personal, it does not require the claimant to first exhaust remedies against the original contractor. This is one of the few circumstances under Texas law where an owner is personally liable to subcontractors with whom the owner has no direct contract.

Contractual retainage

"Contractual retainage" refers to amounts withheld within the contracting chain, typically 10% withheld by the original contractor from each progress payment to subcontractors, and similar withholdings down the chain. These are governed by the underlying contract, not by § 53.101. Subcontractors claiming a lien for contractual retainage must serve a § 53.057 notice and meet the retainage-specific lien-filing deadline (15th day of the 3rd month after the original contract was completed, terminated, or abandoned), which can differ from the general lien-filing deadline.

Release timing

Reserved funds are released to the original contractor at the end of the 30-day post-completion window, assuming no perfected lien claims against the funds. Contractual retainage is released according to the underlying subcontract terms, typically tied to substantial completion of the subcontractor's work plus delivery of close-out items (warranties, as-built drawings, lien releases). Texas law does not impose a maximum retainage rate, but most commercial contracts cap retainage at 10% with reduction (often to 5%) at substantial completion.

Common disputes

Recurring retainage disputes include: (1) whether substantial completion has occurred and triggered reduction; (2) whether final completion has occurred and triggered release; (3) whether the contractor has cured punch-list items entitling release; (4) whether subcontractor lien claims against retainage are valid; (5) interaction between reserved funds release and outstanding lien claims; (6) whether retainage was wrongfully withheld (potentially triggering Prompt Payment Act interest).