I’ve seen it happen more times than I care to count. A subcontractor finishes their scope of work on an Austin commercial project, invoices for their retained funds, and then waits. Thirty days pass. Sixty days. The general contractor keeps saying the owner hasn’t released funds yet. By the time the subcontractor walks into my office, they’ve missed a statutory notice deadline and put their entire retainage claim at risk.
Construction retainage laws in Texas are specific, deadline-driven, and unforgiving when ignored. Whether you’re a general contractor waiting on an owner or a sub two tiers below the prime contract, understanding the construction retainage laws Texas imposes on each party can mean the difference between collecting what you’re owed and losing it entirely. Our construction law attorneys work with contractors and subs across Austin and Central Texas on exactly these issues.
Here’s what the law actually says – and what you need to do to protect yourself on every project.
Disclaimer: This article is for educational and informational purposes only and does not constitute legal advice. Construction retainage laws in Texas involve specific statutory deadlines and notice requirements that vary by project type and contract. Consult a licensed Texas construction attorney for guidance on your specific situation.
What Is Construction Retainage Under Texas Law?
Retainage – also called retention – is the portion of each progress payment withheld during a construction project. Texas construction retainage laws recognize two distinct types.
Reserved Funds (Statutory Retainage) is created and required by Texas statute. Under Texas Property Code § 53.101, a property owner must withhold at least 10% of the value of work performed by the general contractor on private construction projects. This obligation exists regardless of contract language. These funds exist specifically to protect subcontractors and suppliers who can reach them if the general contractor fails to pay downstream.
Contractual Retainage is what general contractors pass to subcontractors through subcontract terms. Texas law does not automatically require this – it flows from the subcontract itself, and typically mirrors the 10% the owner holds from the general contractor. House Bill 2237 (eff. Jan. 1, 2022) renamed these categories – “statutory retainage” became “Reserved Funds” and “contractual retainage” became simply “Retainage” in Chapter 53. (Tex. Prop. Code Ch. 53, as amended by H.B. 2237.)
Construction Retainage Limits Under Texas Law: How Much Can Be Withheld?
Texas construction retainage laws set hard caps on how much can be withheld, and those caps differ between private and public projects. Withholding more than permitted exposes the owner to liability. Withholding less on private projects has its own legal consequences.
Private Projects
Texas construction retainage laws set private project limits at two tiers:
- Projects under $5 million – No more than 10% of the total contract price may be withheld as retainage. (Tex. Prop. Code § 53.101.)
- Projects valued at $5 million or more – Retainage is capped at 5% of the contract price. (Tex. Prop. Code § 53.101; Levelset Texas Retainage FAQs, 2025.)
A critical point that surprises many owners: the 10% statutory minimum on private projects is not just a cap – it is an obligation. Owners who fail to withhold the required retainage can become personally liable for unpaid subcontractor claims up to that amount. In First National Bank in Graham v. Sledge, the Texas Supreme Court confirmed that noncompliance with retainage withholding requirements exposed an owner to direct financial liability. Owners cannot pay the general contractor early and avoid this obligation.
Public Projects
Texas construction retainage laws on public projects operate under Texas Government Code Chapter 2252, overhauled by House Bill 692, effective June 15, 2021:
- Public contracts under $5 million – Maximum 10% retainage permitted. (Tex. Gov’t Code § 2252.032.)
- Public contracts at $5 million or more – Maximum 5% retainage permitted. (Tex. Gov’t Code § 2252.032.)
- Pass-through protection – A prime contractor cannot withhold from a subcontractor a higher percentage than the governmental entity withholds from the prime, at every tier. (Tex. Gov’t Code § 2252.032(d).)
Public entities may also agree with the prime contractor to deposit retainage in an interest-bearing account on competitively awarded contracts of $10 million or more, with interest paid to the contractor on completion. (Tex. Gov’t Code § 2252.032(c).)
| Project Type | Contract Value | Max Retainage |
|---|---|---|
| Private | Under $5 million | 10% |
| Private | $5 million or more | 5% |
| Public | Under $5 million | 10% |
| Public | $5 million or more | 5% |
| Residential (1-4 units) | Any | Exempt from statutory retainage |
When Must Retainage Be Released? Texas Law Timelines
Texas construction retainage laws tie release to project completion milestones – and the timelines are tighter than many owners and general contractors expect. Missing these windows exposes the withholding party to breach of contract claims and, on public projects, a right to cure or offer compensation.
On private projects, Reserved Funds must be released within 30 days after final completion. (Tex. Prop. Code § 53.101.) An owner who releases funds after receiving a subcontractor’s proper retainage claim notice faces direct liability to that subcontractor for the unpaid amount.
On public projects, governmental entities cannot withhold retainage after the prime contractor completes the required work, including during the warranty period. (Tex. Gov’t Code § 2252.032.) The 2025 Texas Uniform General Conditions update added a 90-day outside deadline after Substantial Completion for retainage release, absent a bona fide dispute. (ABC Texas, 2025 UGC Update Summary.) Entities may continue withholding only upon written notice of a documented dispute or if the project surety refuses to agree to release.
How to Demand Retainage Payment: Notice Requirements Under Texas Law
Most retainage disputes are won or lost before anyone sets foot in a courtroom, in whether the right notices went to the right parties at the right time. Texas construction retainage laws impose mandatory deadlines, and missing them can extinguish an otherwise valid claim.
Notice of Claim for Unpaid Retainage (Private Projects)
For contracts entered into on or after January 1, 2022, subcontractors claiming unpaid contractual retainage on private projects must send a Notice of Claim for Unpaid Retainage in the statutory form required by Texas Property Code § 53.057. (Tex. Prop. Code § 53.057, as amended by H.B. 2237.) This notice must be sent to both the property owner and the general contractor.
The deadline to send this notice is the earlier of:
- The 30th day after the date the claimant’s subcontract is completed, terminated, or abandoned
- The 30th day after the date the original contract between the owner and general contractor is terminated or abandoned
Best practice is to send the contractual retainage notice as soon as the subcontract is signed – not at the end of the job when you may already be past the window.
Lien on Retainage (Private Projects)
Under Texas construction retainage laws, the lien on retainage must be filed within 30 days after the earliest of: the 40th day after an Affidavit of Completion (if the owner gave a timely notice), the 40th day after contract termination or abandonment, or the 30th day after the owner’s written demand to file a lien affidavit. (Tex. Prop. Code § 53.057.) The outside deadline for commercial projects is the 15th day of the 4th month after last furnishing; for residential, the 15th day of the 3rd month. (Tex. Prop. Code § 53.052.)
Monthly Notices for Unpaid Progress Payments (Private Commercial Projects)
Beyond retainage, subcontractors with unpaid progress payments must send monthly fund-trapping notices. For contracts entered on or after January 1, 2022, these go out by the 15th day of the 3rd month after each unpaid month on commercial projects (2nd month for residential). (Tex. Prop. Code § 53.056.) Missing one month forfeits lien protection for that month’s work.
Payment Bonds and How They Change the Retainage Picture
A payment bond changes the enforcement landscape for construction retainage laws in Texas – sometimes in ways that benefit subcontractors and sometimes in ways that catch them off guard.
Statutory Payment Bond on Private Projects
Under Texas Property Code § 53.202, a general contractor can provide a statutory payment bond that relieves the owner of the retainage withholding obligation. When a valid Chapter 53 payment bond is properly recorded with the prime contract, subcontractor liens no longer attach to the owner’s property – the bond becomes the subcontractor’s source of recovery.
For the bond to qualify under § 53.202, it must be in the penal sum of the full contract amount, executed by a Texas-admitted corporate surety, conditioned on prompt payment, and recorded in the county’s real property records with the prime contract. (Tex. Prop. Code § 53.202.) On private bonded projects, first-tier subcontractors are not required to give separate notice to perfect a retainage claim – the standard fund-trapping notice serves as the bond claim. Second-tier and lower subcontractors face additional notice requirements.
Payment Bonds on Public Projects
Because liens cannot be filed against public property, the payment bond is the primary recovery tool on public projects. Prime contractors are required to furnish a payment bond for subcontractors and suppliers under Chapter 2253. (Tex. Gov’t Code § 2253.021.) To perfect a retainage bond claim, a first-tier subcontractor must send written notice to the prime and surety by the 90th day after final completion. (Tex. Gov’t Code § 2253.073.) Second-tier subcontractors face earlier deadlines and additional notice requirements – missing any of them forfeits the bond claim.
When Can Contractors File Suit or a Lien for Wrongfully Withheld Retainage?
When proper notices are in place and retainage still isn’t paid, enforcement options are available. Our contract dispute attorneys handle these cases across Austin – and the path forward depends on project type and notice compliance.
Lien Foreclosure on Private Projects
A subcontractor who has timely filed a lien on retainage can pursue foreclosure within two years of the lien filing date. (Tex. Prop. Code § 53.158.) The lien clouds title and creates direct pressure on owners and general contractors to resolve the dispute. Texas courts in Zachry Construction Corp. v. Port of Houston Authority have confirmed that contractual provisions imposing indefinite retainage withholding are unenforceable – parties cannot contract around these statutory protections.
Suit on a Payment Bond
On bonded projects, a contractor who has properly perfected a bond claim can file suit against the surety and prime contractor. For public projects under Chapter 2253, suit must be filed more than 61 days after mailing the claim notice and no later than one year from the third-month notice date. (Tex. Gov’t Code § 2253.073.) Reasonable attorney’s fees are recoverable on a successful bond claim.
Breach of Contract and Direct Claims
Wrongful withholding beyond what construction retainage laws Texas permits is a breach of contract. Owners who fail to release Reserved Funds within 30 days of final completion, and general contractors who hold retainage past the contractual release date, face direct breach claims. Where bad faith is shown, additional remedies may apply. Our litigation attorneys handle these disputes across Travis County and Central Texas.
Frequently Asked Questions About Construction Retainage Laws in Texas
What are the retainage limits under construction retainage laws in Texas for private projects?
Texas law caps retainage at 10% of the contract price on private projects under $5 million, and 5% on projects valued at $5 million or more. Owners who fail to withhold the required minimum can face direct liability to unpaid subcontractors. (Tex. Prop. Code § 53.101.)
When must retainage be released on private projects under Texas law?
Reserved Funds on private projects must be released within 30 days after final completion. An owner who receives proper notice of an unpaid retainage claim must continue withholding or face direct liability to that subcontractor.
Do construction retainage laws in Texas cover residential projects?
Statutory Reserved Funds requirements do not apply to single-family homes, duplexes, triplexes, or fourplexes under Texas Property Code § 53.001(8). Contractors on these projects still have lien rights, and contractual retainage may apply under subcontract terms.
What is the Notice of Claim for Unpaid Retainage?
It is a statutory form required under Texas Property Code § 53.057 for subcontracts entered on or after January 1, 2022. It must go to both the owner and general contractor within 30 days after the subcontract is completed, terminated, or abandoned. Send it at the start of the project – not the end.
Protect Your Retainage Rights on Every Austin Project
Construction retainage laws in Texas are designed to protect contractors and subcontractors – but only if you use them correctly and on time. The notice deadlines are strict. The lien statutes are technical. And the difference between a properly perfected retainage claim and a forfeited one often comes down to a single missed letter to the right party by the right date.
If you’re a contractor or subcontractor in Austin or Central Texas dealing with withheld retainage, an owner who won’t release funds after completion, or a general contractor that’s gone silent after final invoicing, the time to act is before those statutory windows close – not after. Contact Kelly Legal Group to schedule a consultation with our construction law team and find out exactly where you stand.
