New York Closes the Retainage Loophole: What SB 5655 Means for Your Progress Payments

Governor Kathy Hochul signed Senate Bill 5655 on December 19, 2025, and it took effect the same day. The law amends Section 757 of New York’s General Business Law to make void any provision in a private construction contract of $150,000 or more that requires retainage exceeding 5 percent of the contract sum. Not discouraged. Not capped by default with an opt-out. Void, full stop, even if both parties signed off on a higher number.

For subcontractors on New York private jobs, this closes a gap that has been sitting open since 2023.

What the 2023 cap left open

New York’s original retainage reform, under Section 756-c, set the 5 percent ceiling back in 2023. It looked like a real fix on paper. What it did not do was stop parties from contracting around it. An owner and a general contractor could still write a private agreement that called for 8 percent, 10 percent, or whatever number they wanted, and courts had no clear statutory basis to strike it down just because both signatures were on the page.

That is the loophole SB 5655 closes. By adding excess-retainage clauses to the list of terms void and unenforceable under Section 757, the amendment removes the “we both agreed to it” defense. A clause that exceeds 5 percent is unenforceable on a covered contract now, no matter what either party signed.

How the withholding schedule works

The 5 percent figure is a cap on the total, not a flat rate applied to every payment. In practice, an owner can still withhold up to 10 percent on progress payments during the first half of the contract’s work. Once the project passes the halfway mark, new withholding on progress payments has to drop to zero, and whatever was held back earlier has to be released no later than 30 days after final approval of the work.

Contract stage	Retainage on new progress payments
First 50 percent of the work	Up to 10 percent
After 50 percent complete	0 percent
Final approval	Prior retainage released within 30 days

Two separate mechanics working together: the per-payment schedule above controls what gets held back and when, while the 5 percent figure is the ceiling on the total retainage an owner can lawfully sit on across the life of the contract. SB 5655’s contribution is making sure nobody can contract past that ceiling.

Not the same fix as California’s

If this sounds like it overlaps with California’s AB 2272, it does not. AB 2272 gives subcontractors on California state contracts a way to check whether a prime contractor passed along payment the state already sent. It is a transparency mechanism on public work. SB 5655 is a hard dollar cap on private New York contracts, closing a specific loophole that let owners write around a limit that was supposed to already apply. One tells you whether money moved. The other limits how much can be withheld in the first place.

Why your invoice is what makes the cap enforceable

A statutory cap only protects you if your own paperwork shows what is being withheld against it. If a progress payment invoice lists a single net figure with no breakdown, there is nothing on the page that lets you, your accountant, or a court check whether the retainage held back that period stayed inside the 10 percent first-half allowance, let alone whether the running total crossed 5 percent of the contract sum.

An invoice that itemizes the contract sum, the gross amount billed for the period, the retainage percentage applied, and the dollar figure withheld turns “the law says 5 percent” into something you can point to. If an owner tries to hold back more than the schedule allows, that gap shows up as a specific number on a specific invoice instead of a vague feeling that the final payment came up short.

A BillyPaid invoice keeps every line item, including retainage, broken out on the document itself, so what was withheld and what is still owed is never buried inside a lump sum.