New York A5405: a retainage clause above five percent is void

What changed on December 19, 2025

The act adds one subdivision to section 757 of the General Business Law and does nothing else. Its title says what it is about:

A5405, title

AN ACT to amend the general business law, in relation to void provisions in construction contracts

The new subdivision:

General Business Law 757(5), new

5. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract requiring retainage as expressly provided for by section seven hundred fifty-six-c of this article in an amount exceeding five percent of the contract sum.

Read with the title, it puts a clause requiring retainage above five percent of the contract sum among the void provisions in construction contracts. The Assembly's own summary of the bill says the same thing in plain words:

Assembly bill page for A5405, summary

Voids provisions in construction contracts requiring retainage as expressly provided for by section seven hundred fifty-six-c of the general business law in an amount exceeding five percent of the contract sum.

The subdivision reaches more than a clause printed in the contract. It names a provision, covenant, clause or understanding, whether it is in the contract, collateral to it or affecting it.

What it leaves open: it does not say what rate of retainage applies once such a clause is void, and it does not set a penalty. The opening words of section 757, which say what follows from being on its list, were not read for this page.

Who it covers, and what this page did not read

The subdivision is tied to section 756-c. It reaches retainage “as expressly provided for by” that section, and 756-c, as the 2023 act rewrote it, names who may hold retainage: an owner, a contractor and a subcontractor. The sponsor's memo for A5405 describes that 2023 act as the one that brought private construction contracts into line with state ones:

Sponsor's memo for A5405, justification

Chapter 657 of the Laws of 2023 brought private construction contracts in line with state construction contracts by limiting the amount of retainage that contractors and subcontractors can hold from other subcontractors to a maximum of five percent.

A sponsor's memo explains a bill. It is not the law. The memo goes on to speak of qualifying projects without saying which ones those are, and says what the bill was aimed at:

Sponsor's memo for A5405, justification, continued

While it was the clear intent of the legislature to ensure that qualifying projects capped retainage at five percent, there are still many construction projects in which general contractors offer retainage at 10% or higher.

This page reads the two acts and the Assembly's record of them. It does not quote the opening words of section 757, or any other part of the article these sections sit in, so it cannot say which jobs count as a construction contract under it. Construction contract and contract sum are not defined in the text quoted here, and the current consolidated text of 756-c was not read either. Nothing in the two acts carves out work on a house or a public job, but read the rest of the article before assuming it reaches yours.

From when: immediately, from December 19, 2025

The act's last section is one line:

A5405, section 2

§ 2. This act shall take effect immediately.

The Assembly's record of the bill shows it delivered to the Governor on December 8, 2025 and signed on December 19, 2025 as chapter 654, with an approval memo the same day:

Assembly bill page for A5405, last three actions

12/08/2025 delivered to governor 12/19/2025 signed chap.654 12/19/2025 approval memo.36

Each row is a date followed by the action taken that day.

Where those dates are: A5405 on the Assembly's site: summary, actions and sponsor's memonyassembly.gov

The act does not say whether it reaches a contract signed before that day. The sponsor's memo says it applies to contracts entered into from then on:

Sponsor's memo for A5405, effective date

This act shall take effect immediately and shall apply to contracts entered into on or after such effective date.

That sentence is in the memo, not in the act. The bill text says only that it takes effect immediately. The 2023 act did put the same words into its own text, which is quoted below. The approval memo listed in the record was not read for this page.

Where the five percent comes from: the 2023 change to section 756-c

The limit that the new subdivision enforces was set two years earlier, by S3539 of 2023, which became chapter 657 of the Laws of 2023:

Assembly bill page for S3539 of 2023, last two actions

11/13/2023 DELIVERED TO GOVERNOR 11/17/2023 SIGNED CHAP.657

Each row is a date followed by the action taken that day.

It rewrote section 756-c. The bill prints a key saying how to read its changes:

S3539 of 2023, key printed with the bill

EXPLANATION--Matter in italics (underscored) is new; matter in brackets [ ] is old law to be omitted.

S3539 of 2023, section 2

§ 2. Section 756-c of the general business law, as added by chapter 127 of the laws of 2002, is amended to read as follows:

Section 756-c as it rewrote it, sentence by sentence. First, what an owner may hold:

General Business Law 756-c as the 2023 act printed it, first sentence

§ 756-c. Retention. By mutual agreement of the relevant parties an owner may retain [ a reasonable amount ] no more than five per centum of the contract sum as retainage.

Words in square brackets are the old law the act took out, and the words after them are the new law. The underline that marks new words on the Assembly's page does not survive in a plain copy, so the brackets are the only marking shown here.

Second, what a contractor or sub may hold, which also cannot go past what the owner holds:

756-c as the 2023 act printed it, second sentence

A contractor or subcontractor may also retain [ a reasonable amount ] no more than five per centum for retainage [ so long as the amount does not ] and in no case shall retainage exceed the actual percentage retained by the owner.

Then when the owner has to release it, and the interest if anyone in the chain does not release it or pass it on:

756-c as the 2023 act printed it, third sentence

Retainage shall be released by the owner to the contractor no later than thirty days after the final approval of the work under a construction contract.

756-c as the 2023 act printed it, fourth sentence

In the event that an owner fails to release retainage as required by this article, or the contractor or subcontractor fails to release a proportionate amount of retainage to the relevant parties after receipt of retainage from the owner, the owner, contractor, or subcontractor, as the case may be, shall be subject to the payment of interest at the rate of one percent per month on the date retention was due and owing.

The 2023 act said in its own text that it applies to contracts entered into from its effective date:

S3539 of 2023, section 3

§ 3. This act shall take effect immediately and shall apply to contracts entered into on or after such effective date.

Section 1 of the 2023 act also changed section 756-a, on invoicing at substantial completion, and that part is not quoted here. What is quoted is 756-c as the 2023 act printed it. The consolidated text in force today was not read for this page, so check it for any later change. The Assembly's record of the 2023 act:

Read the law: S3539 of 2023 on the Assembly's site: summary and actionsnyassembly.gov

The act itself, word for word

Section 1 of A5405 says where the new words go:

A5405, section 1

Section 1. Section 757 of the general business law is amended by adding a new subdivision 5 to read as follows:

With the subdivision and section 2 quoted above, that is every word of the act's two sections, quoted from the bill text on the Assembly's site and checked against a saved copy of it when this page is built. The sponsor's memo gives the purpose in one line:

Sponsor's memo for A5405, purpose

To ensure compliance with the statutory requirement of a maximum five percent retainage in construction contracts.

Read the bill, its record and the memo there:

Read the law: A5405 bill text (Laws of 2025, Chapter 654)nyassembly.gov

What to do differently

Only what the text supports:

• Read the retainage clause in any New York construction contract before you sign. A clause requiring retainage above five percent of the contract sum is the one the new subdivision names.
• If you are a sub, check the figure against the owner's too. Under 756-c as the 2023 act wrote it, a contractor or sub may hold no more than five per centum, and in no case more than the percentage the owner actually retains.
• Do not assume a void clause means no retainage at all. Subdivision 5 does not say what applies in its place.
• Track the release date. Under the 2023 text the owner releases retainage no later than thirty days after final approval of the work, and a party that does not release it, or pass on its share, owes interest at one percent per month.
• For a contract signed before December 19, 2025, the act's own text does not settle whether subdivision 5 applies. The sponsor's memo says it applies to contracts entered into from that date.
• Before relying on any of this, read the current text of sections 756-c and 757, and the rest of that article, as New York publishes them. This page quotes the two acts, not the consolidated law.

Questions people ask

Is a 10 percent retainage clause void in New York?

A clause requiring retainage above five percent of the contract sum, of the kind section 756-c provides for, is named in General Business Law 757(5). The act that added it, A5405, is titled as relating to void provisions in construction contracts, and the Assembly's summary says it voids such provisions. Whether your contract is one the article covers turns on parts of the law this page did not read.

When did the New York rule take effect?

The act says it takes effect immediately, and the Assembly's record shows it signed as chapter 654 on 12/19/2025. The act does not say whether it reaches older contracts. The sponsor's memo says it applies to contracts entered into on or after the effective date, but a memo is not the law.

Can a sub be held to more retainage than the owner holds?

Not under 756-c as the 2023 act rewrote it. A contractor or subcontractor may retain no more than five per centum, and in no case more than the actual percentage retained by the owner.

When does retainage have to be released in New York?

Under 756-c as the 2023 act printed it, the owner releases retainage to the contractor no later than thirty days after final approval of the work. An owner, contractor or sub that fails to release it, or fails to pass on a proportionate amount after receiving it, is subject to interest at one percent per month.

Does GBL 757(5) apply to a home renovation?

This page cannot say. Nothing in the two acts quoted here carves out work on a house, but the parts of the article that decide which contracts count were not read for this page. Check them before assuming either way.

Retainage calculator: what is held, what is payable, what is left at closeout · New York lien waiver rules under Lien Law 34, and the notice of lien for retainage

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

This page quotes New York Laws of 2025, Chapter 654 (A5405), adding General Business Law 757(5), and Laws of 2023, Chapter 657 (S3539), amending General Business Law 756-c 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.