Nightmare on Retention Street

Existing Retentions

Existing retentions which remain unchanged during the Transition Period will not be affected, but you should carefully consider whether any proposed variations during the Transition Period could bring the relevant provisions within the scope of the new regime.

All existing retentions held on account should be considered in light of the upcoming changes. Repayment of a retention caught by the legislation is triggered at the end of the Transition Period and there will be fixed amounts payable if retentions are withheld in contravention of the new regime (£40 or 50% of the retention debt).

Alternatives

What alternative arrangements are available? These may include:

• Retention/warranty bonds (although these come at a cost and can be difficult for smaller contractors to procure)

• Parent company guarantees

• Escrow arrangements (where a bank or escrow provider is facilitating the transfer of funds only)

• Genuine staged/interim payments (where those sums are not being withheld for the completed work)

• A carefully structured “development agreement” with retention provisions, comprising a disposal of an interest in land but also incorporating construction obligations (at present, the legislation is only intended to catch Construction Act contracts)

In each case, it is essential to consider the substance of what is being agreed rather than the label, to ensure that the arrangement does not amount to a prohibited retention.

This is a hot topic for our RP, local authority and developer clients and we will provide further updates as the legislation is progressed through Parliament. If you would like any support regarding these upcoming changes, please get in touch with our Affordable Housing Development and Construction & Engineering Teams.