California SB 61: the 5% retention cap on private jobs

What changed on January 1, 2026

Section 8811 is new. The act that created it says in its own title that it adds that section, and it adds nothing else:

SB 61, Chapter 49, title

An act to add Section 8811 to the Civil Code, relating to works of improvement.

The Legislative Counsel's digest, the plain summary printed at the top of the bill, describes the law before SB 61 by when retention has to be paid out, and describes SB 61 as the change that limits how much can be held:

Legislative Counsel's digest of SB 61, existing law

Existing law generally governs retention payments withheld with respect to a contract for a private work of improvement, including by requiring an owner that withholds a retention from a direct contractor to, within 45 days after completion of the work of improvement, pay the retention to the contractor.

Legislative Counsel's digest of SB 61, the change

With respect to a contract for a private work of improvement, this bill would limit the amount of a retention payment by, among other things, prohibiting a retention payment withheld from a payment by an owner from the direct contractor, by the direct contractor from any subcontractor, and by a subcontractor from any subcontractor thereunder, from exceeding 5% of the payment, subject to certain exceptions.

Section 8811 itself sets three limits. Each one runs down the whole chain: the owner holding from the direct contractor, the direct contractor holding from a sub, and a sub holding from the sub below it.

First, no single payment can have more than 5 percent held back from it:

Civil Code 8811(b)(1)(A)

(A) A retention payment withheld from a payment by an owner from the direct contractor, by the direct contractor from any subcontractor, and by a subcontractor from any subcontractor thereunder, for a private work of improvement, shall not exceed 5 percent of the payment.

Second, the total held across the job cannot go past 5 percent of the contract price:

Civil Code 8811(b)(1)(B)

(B) In no event shall the total retention proceeds withheld exceed 5 percent of the contract price.

Third, a subcontract cannot hold back a bigger percentage than the prime contract does. If the contract between the owner and the direct contractor specifies 3 percent, a subcontract under it can hold at most 3 percent:

Civil Code 8811(b)(1)(C)

(C) In a contract between the direct contractor and a subcontractor, and in a contract between a subcontractor and any subcontractor thereunder, the percentage of the retention payment withheld shall not exceed the percentage specified in the contract between the owner and the direct contractor.

Who it covers, and who it does not

It covers private work. Subsection (a) limits the section to a contract for a private work of improvement, and (b)(1)(A) names every link in the chain: owner, direct contractor and every tier of sub.

Most jobs on a house are outside it. Subsection (b)(3) takes a residential project out of the cap, for the owner, the direct contractor and every sub alike, as long as the project is not mixed-use and does not go over four stories:

Civil Code 8811(b)(3)

(3) Paragraph (1) does not apply to an owner, direct contractor, or subcontractor on a residential project if the project is not mixed-use and does not exceed four stories.

On a plain reading, a remodel, reroof, addition or new build on an ordinary house is a residential project that is not mixed-use and is well under four stories, so the cap does not reach it. A residential building over four stories is not excluded, and neither is a mixed-use one. Section 8811 does not define residential project or mixed-use, so a job near the line, a house with a shop built into it for example, is one to check rather than assume.

A sub who was told to bond and did not. Subsection (b)(2) lifts the cap for a direct contractor or sub who said in writing, before or when the bid was requested, that a performance and payment bond would be required, if the sub then does not furnish one from an admitted surety insurer:

Civil Code 8811(b)(2)

(2) Paragraph (1) does not apply to a direct contractor or subcontractor if the direct contractor or subcontractor provides written notice to a subcontractor before, or at, the time that the bid is requested that a faithful performance and payment bond shall be required, and a subcontractor subsequently fails to furnish to the direct contractor or subcontractor a performance and payment bond issued by an admitted surety insurer.

That exception names the direct contractor and the sub. It does not name the owner, so it does nothing to the cap on what an owner holds from the direct contractor.

From when: contracts entered into on or after January 1, 2026

The date that counts is the date of the contract, not the date of the work or of the payment. In the section's own words:

Civil Code 8811(a)

(a) This section is applicable to a contract relating to a private work of improvement entered into on or after January 1, 2026.

So a contract entered into in 2025 is outside section 8811 even if the work and the payments run on into 2026. Whether a change order on an older contract counts as a new contract is a question the section does not answer.

The Governor approved the bill on July 14, 2025, and the section carries this history note:

SB 61, Chapter 49

Approved by Governor July 14, 2025.

Civil Code 8811, history note

(Added by Stats. 2025, Ch. 49, Sec. 1. (SB 61) Effective January 1, 2026.)

The fee rule, and the text itself

The last subsection is about who pays the lawyers:

Civil Code 8811(c)

(c) In any action to enforce the provisions of this section, a court shall award reasonable attorney’s fees to the prevailing party.

It cuts both ways. The fees go to the prevailing party, which is whoever wins. A sub who sues over retention held above the cap and wins gets fees. One who sues and loses has handed the fee award to the other side.

That is the whole of section 8811. Every subsection of it is quoted on this page, word for word from the Legislature's own site, and the build that makes this page checks each quote against a saved copy of that text and refuses to publish if one does not match. Read it there before you rely on it:

Read the law: Civil Code section 8811 and SB 61 as chapteredleginfo.legislature.ca.gov

What did not change: the payout clock

SB 61 added one section and amended none, so the older rules on when retention has to be paid out read as they did before. Each of the three below carries a history note showing it was added in 2010, and no later change.

The owner pays the retention to the direct contractor within 45 days after completion:

Civil Code 8812(a)

(a) If an owner withholds a retention from a direct contractor, the owner shall, within 45 days after completion of the work of improvement, pay the retention to the contractor.

The direct contractor passes each sub's share on within 10 days of receiving it:

Civil Code 8814(a)

(a) If a direct contractor has withheld a retention from one or more subcontractors, the direct contractor shall, within 10 days after receiving all or part of a retention payment, pay to each subcontractor from whom retention has been withheld that subcontractor’s share of the payment.

Paying late carries a penalty of 2 percent a month, and in a suit to collect, whoever wins gets costs and fees:

Civil Code 8818

If an owner or direct contractor does not make a retention payment within the time required by this article:

Civil Code 8818(a)

(a) The owner or direct contractor is liable to the person to which payment is owed for a penalty of 2 percent per month on the amount wrongfully withheld, in place of any interest otherwise due.

Civil Code 8818(b)

(b) In an action for collection of the amount wrongfully withheld, the prevailing party is entitled to costs and reasonable attorney’s fees.

This page does not say which projects these three reach, because the section that sets their scope is not quoted here. Read them in full before relying on them:

Read the law: Civil Code section 8812, Civil Code section 8814 and Civil Code section 8818leginfo.legislature.ca.gov

What to do differently

Only what the text supports:

• Check two things first: the date the contract was entered into, and whether the job is a residential project that is not mixed-use and four stories or fewer. If the contract is from before 2026, or the job is that kind of residential project, section 8811 does not cap the retention.
• On a private job it does cover, read the retention clause against both limits: 5 percent of each payment, and 5 percent of the contract price in total.
• If you are a sub, ask what percentage the prime contract holds. Your subcontract cannot hold a bigger one.
• If you are a direct contractor, the cap on what you hold from a sub stops applying in one case only: you gave written notice, before or when you asked for the bid, that a performance and payment bond would be required, and the sub then did not furnish one from an admitted surety insurer. Give that notice in writing and keep a copy.
• Before you sue over retention, remember the fee award goes to whoever wins.
• Track what is being held and when it is due. The payout deadlines of 45 days and 10 days did not change.

Questions people ask

Does SB 61 cap retention on a kitchen remodel?

Not if the job is a residential project that is not mixed-use and is four stories or fewer, which on a plain reading describes a remodel on an ordinary house. Civil Code 8811(b)(3) says the cap does not apply to the owner, the direct contractor or any sub on that kind of project.

My contract was signed in December 2025. Does the 5 percent cap apply?

No. Civil Code 8811(a) applies the section to a contract relating to a private work of improvement entered into on or after January 1, 2026. The date the contract was entered into is what counts, not when the work or the payments happen.

The owner holds 5 percent from the general contractor. Can my subcontract hold 10?

Not on a job section 8811 covers. Section 8811(b)(1)(C) says the percentage held in a subcontract cannot exceed the percentage specified in the contract between the owner and the direct contractor, and (b)(1)(A) caps every level at 5 percent of the payment in any case. The exceptions are the bond exception in (b)(2) and the residential exclusion in (b)(3).

Does SB 61 apply to public works?

Section 8811 is written for a private work of improvement, in subsection (a) and again in (b)(1)(A). It says nothing about public works, and this page does not cover the rules for them.

Who pays the lawyers if there is a fight over retention?

In an action to enforce section 8811, the court shall award reasonable attorney's fees to the prevailing party, under 8811(c). That is whoever wins, so it helps a sub with a good claim and costs one with a bad claim.

Retainage calculator: what is held, what is payable, what is left at closeout · California lien waiver forms, on the statutory wording

Other state changes to how contractors get paid are on the construction law changes page.

This page quotes California Civil Code section 8811, as added by SB 61 (Statutes of 2025, Chapter 49) and explains what it says. It is not legal advice, and a statute can be amended. Read the linked section before you rely on it.