Contractors in Tennessee have to work that much harder to comply with state retainage laws. Construction laws vary from state to state, and commonplace laws in neighboring states are different from those in Tennessee. For this reason, local and visiting contractors may be unknowingly violating retainage laws in the Volunteer State. In this brief article, the Memphis contractor lawyers at Cotney Construction Law will be going over the minute details of retainage laws that can be overlooked at virtually every stage of a construction project.
A Lower Retainage Cap
Tennessee has an unusually low retainage cap. Depending on the project, Arkansas, Georgia, Missouri, Kentucky, and Mississippi are all neighboring states that allow retainage of up to 10 percent of the total contract price. Contractors performing work in Tennessee may be surprised to find that no more than five percent of the total contract price can be withheld on construction projects. Be sure to have a Memphis contractor lawyer review your contracts to ensure you are compliant with these state laws.
Deadlines to Properly Distribute Funds
Funds cannot be withheld in retainage once a project has reached completion. Owners and general contractors are both subject to this law. Owners in Tennessee have 90 days to disburse retained funds upon project completion. However, general contractors have only 10 days to turn around and pay their subcontractors, and those subcontractors have 10 days to pay their sub-subcontractors and material suppliers.
The Need for an Escrow Account
As put forth by Tennessee Code § 66-34-104, any retained amount on construction projects that exceed $500,000 in price must be “deposited in a separate, interest-bearing, escrow account with a third party which must be established upon the withholding of any retainage.” In the event that a general contractor is responsible for this retained amount and fails to abide by this code, they must pay a $300 penalty per day that these funds are not deposited into an escrow account.
Consult a Professional
Contractors unfamiliar with the above state laws could receive a Class A misdemeanor and a fine of $3,000. Continuing violations in the face of these penalties could lead to a recurring citation. Harsh penalties such as these can be avoided when contractors partner with an attorney that specializes in Tennessee construction law. Retained funds are meant to be an incentive that spurs a project on to completion, not a cause of distress. Whenever reviewing or drafting contracts that involve retainage, do so with the aid of a Memphis contractor lawyer at Cotney Construction Law.
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.