Texas Retainage Laws and What They Mean for Your Mechanic’s Lien

We’ve said it before and we’ll say it again: Texas has some of the most complex mechanic’s lien laws in the nation. Contractors working out of the Lone Star State need to stay in the know regarding any and all regulations that pertain to payment. Retainage, also known as “retention,” is just one of many factors that affect when a contractor or subcontractor gets paid and whether or not they have to resort to a mechanic’s lien. 

Below, one of our Houston construction lien attorneys discusses retainage laws in the State of Texas and how you can reclaim retained funds when an owner refuses to pay you for completed work. As always, the attorneys from Cotney Law are here to defend contractors and ensure that they receive what is rightfully theirs. 

Retainage: A Safeguard or Problem? 

Retainage is the amount of money that an owner or general contractor is able to withhold from a contractor or subcontractor to ensure that work on a project is completed in a quality and timely manner. Ideally, this amount would prevent a contractor from skipping out on work once they received payment. However, we find that retainage usually creates more problems than it solves, especially in an industry already struggling with cash flow issues. 

Related: 5 Common Sense Ways to Improve Your Bottom Line

Retainage on Private and Public Projects 

For private projects, Texas law states that an owner must retain 10 percent of the contract amount on work in which a mechanic’s lien can be claimed. Public projects are a little different; there is no specified maximum retainage amount. However, with few exceptions, retainage amounts over 5 percent must be placed in an interest-bearing account. We always recommend sending a Notice of Retainage/Request for Information to an owner prior to beginning work on a project. 

Generally, owners are required to release retainage funds 30 days after the work is completed; however, this isn’t always the case. Consult a Houston construction lawyer in any instance in which an owner can retain funds for longer than 30 days. In a perfect world, you would receive payment the moment work is completed. Unfortunately, in the construction world, owners unjustly withhold retainage all the time. When an owner refuses to release retainage on a project you’ve completed work on, you must abide by the below provisions in order to protect your lien rights and receive payment. 

In order to be eligible to file a mechanic’s lien, you must first send a Notice of Contractual Retainage to the owner by certified mail no later than the earlier of: 

  • 30th day after the date your work is completed on the project, or the
  • 30th day after the date your contract was terminated or abandoned 

Of note, if you’re a subcontractor, you must also give this notice to the original contractor in accordance with the above deadlines. While these deadlines may be confusing, this is the only preliminary notice that you have to send in order to file a lien on retained funds, and there’s no reason that you have to wait until the deadline is about to expire to give notice. 

Related: The Deadline for Filing a Texas Mechanic’s Lien 

Filing a Mechanic’s Lien on a Retained Amount 

Once you have given the above notice, your next step in the lien process is to file a lien affidavit. The deadlines for subcontractors to file a lien affidavit are as follows: 

  • 15th day after the fourth month following work being completed 
  • 15th day after the third month following work being completed on a residential project
  • 40th day after the date of completion stated in the owner’s affidavit of completion
  • 30th day after the date the owner sent notice of a demand for you to file a lien affidavit

General contractors who contract directly with the owner only have the lien affidavit to worry about when filing a lien affidavit. The deadline for them is the 15th day of the fourth month following work being completed. However, a general contractor has additional steps to take when filing a lien, which we cover in the series below. 

Related: The Intricacies of Filing a Mechanic’s Lien in Texas

What we’ve now gone over is a very broad outline of the mechanic’s lien process. In order to protect your lien rights and claim unpaid retainage, you’ll need a legal ally who is familiar with every aspect of the Texas lien process. At Cotney Law, we have helped countless contractors, subcontractors, and material providers retrieve payments they were rightfully owed. We are advocates for an industry that seldom receives the recognition and financing it deserves. If you are interested in filing a lien on retained funds, consult a Houston construction lien attorney from Cotney Law. 

If you would like to speak with one of our Houston construction lawyers, please contact us today.

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.