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New York Gov. Kathy Hochul signed Senate Bill (SB) 5655 into law on December 19, 2025, further amending New York's Prompt Payment Act to strengthen protections for contractors and subcontractors in private construction projects. The legislation amends Section 757 of the General Business Law to render void any provision in a private construction contract of $150,000 or more that requires retainage exceeding 5 percent of the contract sum. The law took effect immediately upon signing.
Closing a Contractual Loophole
This legislation builds upon the 2023 amendments to the Prompt Payment Act, which established a 5 percent cap on retainage under Section 756-c of the General Business Law. However, that earlier reform contained a significant gap: Because the 5 percent limitation was not included among the void provisions enumerated in Section 757, owners and general contractors were able to circumvent the statutory cap through contractual provisions requiring higher retainage. Section 756-a of the General Business Law allowed the terms of a construction contract to supersede the Prompt Payment Act "except as otherwise provided" in the article.
SB 5655 closes this loophole by adding retainage provisions exceeding 5 percent to the list of void and unenforceable contract terms under Section 757.
Key Implications for Construction Industry Stakeholders
- Immediate Compliance Required. The amendment applies to all contracts entered into on or after December 19, 2025. Notably, for purposes of enforcement actions, the legislation also affects certain ongoing contracts entered into after November 17, 2023, the effective date of the original 2023 retainage cap.
- Void Contract Provisions. Any contractual provision requiring retainage in excess of 5 percent is now expressly void under Section 757, regardless of what the parties' agreement states. Owners and general contractors may no longer rely on contractual language to impose retainage exceeding the statutory cap.
Recommended Actions
Owners, general contractors and subcontractors involved in qualifying private construction projects in New York should take the following steps:
- Review Standard Form Agreements. Promptly revise standard form contracts to ensure retainage provisions comply with the amended statute.
- Audit Active Contracts. Examine any active contracts entered into after November 17, 2023, to identify potentially void retainage provisions.
- Assess Litigation Risk. Retainage provisions exceeding the statutory limit may be invalidated, potentially resulting in payment disputes and exposure to statutory interest.
- Consult Legal Counsel. Before negotiating or revising retainage provisions, consult experienced construction counsel to ensure full compliance with New York's amended requirements.
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