Are you familiar with the concept of retainage? As a contractor working in the Volunteer State, it’s vital that you volunteer your efforts to learning about the rules on retainage outlined in Title 66, Chapter 34 of the Tennessee Code. Violating these rules could result in a Class A misdemeanor and a $3,000 fine, and if you aren’t quick to correct your behavior, you could find yourself being issued a recurring citation until you finally comply.
In this brief article, the Nashville construction attorneys at Cotney Construction Law will discuss three important facts about retainage in the State of Tennessee. These laws can be complex and more than a little confusing, so regardless of how much time you spend researching construction-related laws, it’s best to have a Nashville construction attorney sign off on your next move.
1. Owners Cannot Withhold Retainage Once the Project is Complete
Under no circumstances can a contractor prevent an owner from withholding a portion of the contract price until the project has been substantially completed. Retainage is legal according to the Tennessee Code. However, the exact scope of retainage is predicated on the terms and conditions of the written contract between the owner and the contractor. With that being said, there are limitations. For example, the value of the retainage an owner can legally withhold cannot surpass five percent of the contract price. Moreover, once you have satisfactorily completed the project, the owner has ninety days to release the funds in retainage from the escrow account in which they are held.
2. Contractors Cannot Withhold Retainage from Subcontractors Once the Project is Complete
Similar to the point made above, contractors cannot withhold funds in retainage from subcontractors who have supplied provisions of labor or materials to a completed project. Once the contractor receives the receipt of retainage, they have only ten days to compensate their subcontractors accordingly. The rules governing retainage rates for contractors are the same as those for owners — not to exceed five percent. The same is true for subcontractors who need to compensate sub-subcontractors.
3. Permission to Release Retainage
When the owner of a project receives an occupancy permit for the improvement of real property from an authorized government agency or a certificate of substantial completion from an architect in a supervisory role, they can release the retainage from the third-party escrow account and compensate the contractor according to the terms of the contract. Unless otherwise stipulated in the contract, the owner is responsible for forfeiting the entirety of the retainage to the contractor, who is then responsible for disbursing payments to their subcontractors.
If an owner is refusing to release retainage to you and you’ve completed a project, they could be breaking the law. Consult a Nashville construction attorney to see how you can obtain the compensation you’re owed.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.