Legal Definitions - retail installment sale

Retainage refers to a portion of a payment, typically a percentage, that a client or owner withholds from a contractor or service provider until the project or work is fully and satisfactorily completed, and any potential claims or liens against the property or project have been resolved. This practice serves as a financial incentive for the contractor to complete the work to the agreed standards and ensures the client is protected from future liabilities, such as unpaid subcontractors or suppliers.

Here are some examples illustrating retainage:

• Residential Home Construction: A family hires a general contractor to build their new custom home. The contract specifies that the family will pay the contractor in installments as different phases of construction are completed (e.g., foundation, framing, roofing). However, for each payment, the family retains 10% of the amount. This 10% retainage will only be released to the contractor after the final inspection confirms all work meets the contract's specifications, all necessary permits are closed, and the contractor provides waivers confirming all subcontractors and suppliers have been paid, preventing any mechanic's liens on the new home.

  This illustrates retainage because the homeowner (client) withholds a percentage (10%) from the contractor until satisfactory completion and resolution of potential liens (ensuring subcontractors are paid).

• Commercial Office Renovation: A business owner contracts with a construction company to completely remodel their office space. The total project cost is $200,000. The contract includes a clause stating that 5% of each progress payment will be held back as retainage. Once the renovation is finished, approved by the city inspector, and the business owner is satisfied with the quality of work, the construction company must also provide documentation proving that all electricians, plumbers, and other tradespeople involved in the project have been paid in full. Only then will the accumulated retainage, totaling $10,000, be released to the construction company.

  This demonstrates retainage as the business owner (client) withholds a percentage (5%) from the construction company (contractor) until the renovation is satisfactorily completed and all subcontractors are paid, preventing liens against the property.

• Public Infrastructure Project: A municipal government awards a contract to a construction firm to build a new community recreation center. The contract, valued at several million dollars, stipulates that 7% of each monthly invoice submitted by the construction firm will be held as retainage. This substantial sum is kept by the city until the recreation center passes all final inspections, receives its certificate of occupancy, and the construction firm submits final lien waivers from all major subcontractors and material suppliers, ensuring the public property is delivered free of any financial encumbrances.

  This example shows retainage where the municipal government (client) withholds a percentage (7%) from the construction firm (contractor) until the project is satisfactorily completed, inspected, and all potential liens are resolved, protecting public funds and property.