Retention Money and Late Payment Law Changes in 2026

Getting paid on time, and getting your retentions back, is a constant worry for subcontractors. In 2026 several countries have moved on this. Victoria has rewritten its payment rules, the UK plans to ban cash retentions, and two big US states have capped retainage at 5 per cent.

In New Zealand, the tougher retention rules from 2023 are still the main protection. Here is what has changed and what it means when you send your next invoice.

New Zealand: retentions must be held on trust

We could not find any new retention law in New Zealand in 2026. The rules that matter are the 2023 changes to the Construction Contracts Act. They apply to commercial construction contracts entered into or renewed from 5 October 2023.

Under those rules, if a head contractor holds back retention money from you:

• The money is held on trust for you as soon as the contract allows it to be withheld.
• It must be kept as cash in a New Zealand bank account used only for retentions, or covered by a bond or insurance.
• It cannot be mixed with the business’s other money.
• You must get a report on your retentions when they are first held, then at least every three months.
• You can ask to see the records at any reasonable time, free of charge.

The penalties are serious. A company can be fined up to 200,000 dollars for not holding retentions properly. Each director can be fined up to 50,000 dollars.

These rules came after big collapses. When Mainzeal failed in 2013, it owed at least 110 million dollars, including at least 18 million dollars in retentions.

Australia: Victoria rewrites its security of payment law

Major changes to Victoria’s security of payment law started on 15 April 2026. They apply to contracts no matter when they were signed. Key changes:

• Variations, latent conditions and delay costs can now generally be claimed under the Act. The old excluded amounts rules are gone.
• You can make one payment claim per calendar month.
• Payment is due within 20 business days of the claim being received.
• A head contractor cannot raise new reasons in adjudication that were not in its payment schedule.
• Unfair notice time bars in contracts can be set aside.
• You can claim up to 6 months after practical completion.

Lawyers at MinterEllison say this brings Victoria closer to the rules in New South Wales, Queensland and Western Australia.

United Kingdom: a ban on cash retentions

In March 2026 the UK government said it plans a full ban on deducting and withholding retention payments in construction contracts. It decided against the other option of keeping retentions in protected accounts.

The ban is not in force yet. There will be more consultation, and a transition period of 12 to 24 months is planned. The government also plans wider late payment rules:

• A maximum payment term of 60 days for large businesses paying smaller suppliers, starting no earlier than 2027.
• Late payment interest of at least 8 per cent above the Bank of England base rate in commercial contracts.
• New powers for the Small Business Commissioner to investigate and fine persistent late payers.

Draft laws had not been published at the time of the announcement.

United States: retainage caps

In the US, payment rules are set mostly by each state. Two big states have made changes:

• California: for private contracts entered into from 1 January 2026, retention is capped at 5 per cent of each progress payment and of the total contract. This applies down to subcontractors and cannot be waived. Most small homes of four storeys or fewer are exempt.
• New York: since 19 December 2025, private construction contracts over 150,000 dollars cannot require retainage of more than 5 per cent of the total contract sum.

What it means for your business

• NZ: ask your head contractor where your retentions are held, and expect a written report at least every three months.
• NZ: if you hold retentions from your own subbies, set up a separate trust account and keep good records. The fines are large.
• Victoria: use the new monthly claim rule and include variations and delay costs where you are entitled to them.
• UK: review your contract terms. Retention clauses and payment terms are likely to change over the next few years.
• Everywhere: send clear, dated invoices or payment claims on time. Good paperwork is still the best way to get paid.

Sources

• Changes to retentions regime, BRANZ
• Regulating retention: a lesson from New Zealand, International Bar Association
• Changes to Victoria’s Security of Payment regime have now commenced, MinterEllison
• Ban on Retention in Construction Contracts, Herbert Smith Freehills Kramer
• California’s New 5% Retention Cap for Private Construction Contracts Takes Effect in 2026, O’Melveny
• New York Amends Prompt Payment Act, Peckar and Abramson