Short answer: Retention is part of your contract price that the paying party holds back as security against defects, usually released in two halves: at practical completion and at the end of the defects period. Once the contract release date has passed and no valid pay less notice or genuine defects dispute applies, unpaid retention is a debt like any other invoice. You can chase it, adjudicate, or instruct a collection partner.
Retentions are one of the most common reasons construction businesses end up owed money long after a job is finished. A main contractor or client holds back a slice of every valuation, typically a few percent, and the money is then forgotten, delayed or lost when someone up the chain fails. This guide explains when retention falls due, which Construction Act rules help you, what the proposed retention ban means, and how to recover retention that is overdue.
This guide is general information for UK businesses, not legal advice. Statutory references were checked on legislation.gov.uk and GOV.UK on 21 October 2026. Primary reading: Housing Grants, Construction and Regeneration Act 1996, Part 2 and the government response to the late payment consultation. Take advice from a construction solicitor on a disputed or high-value contract.
What a retention is
A retention clause lets the payer (the employer, or the main contractor on a sub-contract) deduct a percentage from each interim payment and keep it until the work is finished and any defects are put right. The percentage, the release triggers and any cap are set by the contract. Standard forms and bespoke sub-contracts vary, so always work from the signed document, not from what is “normal” on site.
The usual pattern is:
- First half released at practical completion (or sectional completion for part of the works).
- Second half released when the defects or rectification period ends, often 12 months later, or when the certificate of making good is issued.
Sub-contractors often find their release is tied to completion of the whole project rather than their own package, which can stretch the wait by years. That kind of link is exactly what the Construction Act limits.
Construction Act rules that help you
Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”, as amended in 2009) applies to most construction contracts in England, Wales and Scotland, with exceptions such as work for a residential occupier on their own home (section 106).
| Rule | What it means for retention |
|---|---|
| Section 110(1) and (1A) | The contract must give an adequate mechanism for what is due and when, and a final date for payment. Payment cannot be made conditional on obligations under another contract, with a limited exception for sub-contract chains (s.110(1C)). |
| Sections 110A and 110B | A payment notice must say the sum considered due. If the payer does not issue one, the payee can issue its own default notice. |
| Section 111 | To pay less than the notified sum, the payer must give a valid pay less notice in time. Without one, the notified sum must be paid by the final date. |
| Section 112 | If a notified sum is not paid by the final date, the payee can suspend performance after giving at least 7 days’ notice. |
| Section 113 | Pay-when-paid clauses are ineffective unless a party further up the chain is insolvent. |
| Section 108 | Either party can refer a dispute to adjudication at any time. |
In practice this means that when the release date arrives, the retention should be dealt with through the same payment notice and pay less notice process as any other sum due. If the payer wants to hold it back for defects, it should say so properly and in time, not simply stay silent.
The proposed ban on cash retentions
The government consulted on retentions in its 2025 late payment consultation. In its response of 24 March 2026 it chose to prohibit the deduction and withholding of retention sums under construction contracts, rather than requiring them to be ring-fenced. The Commercial Payments Bill would do this by inserting new sections 113A to 113F into the Construction Act.
At the time of writing (21 October 2026) the bill had reached its final stage in the House of Lords and still needed to pass the House of Commons and receive Royal Assent. The current text provides for a transition period before new retention clauses become void. Until the law changes and that period ends, existing retention clauses still apply, and retention already held is still owed on the terms of your contract.
Why retention goes unpaid
- Nobody chases it. The job is finished, the site team has moved on and the release date passes without anyone diarising it.
- Defects are used as a reason to hold everything. Small or unproven snagging is raised to justify holding the whole sum without a valid pay less notice.
- Release is tied to the whole project. A sub-contractor waits for a project completion date it does not control.
- Upstream insolvency. When a main contractor enters administration or liquidation, retention not held in a trust account usually becomes an unsecured claim.
How to recover overdue retention
- Diarise both release dates from the contract when you sign it, and check them against the practical completion and making-good dates actually certified.
- Apply for it in writing. Submit an application or invoice for the retention on the release date, referring to the clause, the completion evidence and the amount.
- Check the notices. If no valid payment notice or pay less notice was issued in time, the sum you applied for is likely to be the notified sum.
- Deal with genuine defects. If the payer lists specific defects, fix or answer them in writing. A real dispute should be resolved first; see disputed commercial invoices.
- Add what the law allows. Where the contract has no substantial remedy for late payment, the Late Payment of Commercial Debts (Interest) Act 1998 may add statutory interest and fixed compensation.
- Escalate. Send a final demand and a letter before action, consider adjudication for a disputed sum, or instruct a collection partner for an undisputed debt.
Keep the evidence together: the signed contract or sub-contract order, valuations showing the retention deducted, the completion certificate or handover record, and correspondence about defects. Our proof of debt checklist covers the basics, and the construction unpaid invoices guide covers interim payments more widely.
Time limits
In England and Wales a claim on a simple contract is usually barred 6 years after the payment fell due (Limitation Act 1980, section 5), or 12 years for a contract signed as a deed (section 8). Retention released a year or more after the job ended can be easy to forget, but older debts are usually harder to recover, and the debtor may no longer be trading. Chase it as soon as it is overdue; see aged debt over 90 days.
Frequently asked questions
When is retention money due to be paid? When the contract says. Most building contracts release part of the retention at practical completion and the rest at the end of the defects or rectification period, often 12 months later, but the percentage and the trigger come from your own contract, not from a statute.
Can a main contractor hold my retention until they are paid by the client? Generally no. Section 113 of the Housing Grants, Construction and Regeneration Act 1996 makes a pay-when-paid clause ineffective unless the party further up the chain is insolvent, and section 110(1A) stops payment being made conditional on obligations under another contract, with a limited exception for sub-contract chains.
Is unpaid retention a debt I can collect? Once the release date in the contract has passed and no valid pay less notice or genuine defects dispute applies, the retention is a sum due like any other invoice. You can chase it, send a letter before action, adjudicate under the Construction Act, or instruct a collection partner.
Has the government banned cash retentions? Not yet. After its 2025 late payment consultation the government said on 24 March 2026 that it would prohibit cash retentions, and the Commercial Payments Bill carries that ban. At the time of writing (21 October 2026) the bill was still going through Parliament, and the current text includes a transition period, so existing retention clauses still apply today.
What happens to my retention if the main contractor goes into administration? Unless the retention was held in a separate trust account, you are usually an unsecured creditor for it. Check the contract for a trust clause and contact the administrator quickly. A collection partner cannot pursue a company in formal insolvency in the usual way.
Does the Construction Act apply to work on a homeowner's house? No. Section 106 excludes contracts with a residential occupier for work on the home they live in. This site only handles business-to-business debts owed by a Ltd, LLP or PLC.
How long do I have to claim unpaid retention? For a simple contract the usual limit in England and Wales is 6 years from when the payment fell due (Limitation Act 1980, section 5), or 12 years if the contract was signed as a deed. Do not leave it that long: older debts are usually harder to recover.
What does it cost to instruct a partner on unpaid retention? The fee is 15% of what is recovered, payable only when you have been paid. Recovery is not guaranteed, and we are an introducer, not solicitors or an FCA-authorised firm.
If a Ltd, LLP or PLC customer is still sitting on retention that is past its release date, upload the invoice or retention application via unpaid invoices or read how business debt collection works. The fee is 15% of what is recovered, payable only when you have been paid. Recovery is not guaranteed.