What is retention in a building contract?
A percentage of each payment withheld by the client until the work is demonstrably complete and any defects appearing within an agreed period have been corrected — an incentive for the contractor to return and finish properly.
How it works. A percentage — commonly around 5% in domestic work — is deducted from each interim payment. Typically half is released on practical completion, when the work is finished and usable, and the remainder at the end of a defects liability period, once anything that has emerged has been rectified.
Why it exists. The point at which a contractor's attention moves to the next job is the point at which the last 5% of work becomes very difficult to obtain. Retention creates a financial reason to return for snagging, and it is the only leverage that survives completion.
The defects liability period — commonly six or twelve months in domestic work — allows time for problems to appear that are not visible at completion: settlement cracking, leaks that only show in heavy rain, heating faults appearing in winter, and finishes that fail with use.
What must be agreed in writing beforehand:
The percentage.
When each portion is released, and on what trigger.
The length of the defects period.
What counts as practical completion, which should be defined rather than assumed.
The process for notifying and rectifying defects.
The fairness argument, which is genuine. Retention is widely criticised in the construction industry, particularly as applied down supply chains to subcontractors, where it is held for long periods, is sometimes never released, and is lost entirely if the paying party becomes insolvent. The practice has been the subject of government consultation and campaigns for reform, and it causes real harm to small firms.
For domestic clients, the practical position: a reasonable retention on a substantial project is normal and defensible. It should be proportionate, clearly documented, and released promptly when due — withholding it without justification is precisely the behaviour that makes the practice unpopular.
Alternatives include a retention bond, and for smaller jobs simply structuring the final payment to fall after a period of use.