If you are a general contractor working on private commercial projects in California, your retention math changed on January 1, 2026. Senate Bill 61, signed by Governor Newsom on July 14, 2025, added Civil Code § 8811 and cut the maximum allowable retention on most new private construction contracts from the old 10% industry standard down to a hard cap of 5%. Here is what changed, what is exempt, and why your lien waiver process needs to keep pace.
What the California Retainage Cap Actually Does
SB 61 imposes two simultaneous limits:
- Per-payment cap — no single progress payment may have more than 5% withheld as retention.
- Contract-total cap — the total retention held over the life of the contract may not exceed 5% of the full contract price.
Both rules apply at every tier of the payment chain. The retention percentage you withhold from a subcontractor cannot exceed the percentage in your own contract with the owner. If the owner is holding 5% from you, you cannot hold 6% from your concrete sub. The cap flows downstream, uniformly and automatically.
Equally important: these protections cannot be waived by contract. Civil Code § 8820 declares any provision attempting to contract around the private works retention statutes — including new § 8811 — void as against public policy. An owner who writes a 10% retention clause into a new private-works contract signed after January 1, 2026 has an unenforceable clause. Prevailing parties in enforcement actions may recover attorney fees, so this is not a technicality owners can afford to ignore.
Which Contracts Are — and Are Not — Covered
SB 61 applies to private works contracts executed on or after January 1, 2026. Contracts signed before that date are unaffected. If you locked in a subcontract in December 2025 with 10% retention language, that document governs that project.
Residential exception: The cap does not apply to purely residential projects that are (1) not mixed-use and (2) four stories or less. Single-family homes and low-rise apartments fall outside the law. A five-story building with retail on the ground floor is mixed-use — it is covered.
Bond exception: If a subcontractor is notified in writing, at or before bid time, that performance and payment bonds are required, and that sub then fails to deliver those bonds, the retaining party may hold up to 10% from that sub. The written notice must go out before or at bid — not after award. If you skip the written notice at solicitation, the exception is unavailable even if the sub never produces a bond.
| Scenario | Retention cap |
|---|---|
| New private-works contract, signed ≥ Jan 1, 2026 | 5% |
| Residential (non-mixed-use, ≤ 4 stories) | No cap |
| Sub required to furnish bonds (written notice at bid), fails to do so | Up to 10% |
| Contract signed before Jan 1, 2026 | Prior terms apply |
What This Means for Subcontractor Cash Flow
Cutting retention from 10% to 5% effectively doubles the cash released to subs during the project. On a $2 million subcontract, the old 10% standard withheld $200,000 until substantial completion; under SB 61, only $100,000 stays back. That extra $100,000 moves as progress payments throughout construction.
More cash in motion means the conditional-to-unconditional waiver exchange at each pay period is more consequential. Progress payments are bigger now, so a waiver collected in the wrong sequence — or not collected at all — leaves a larger exposed amount. The standard sequence still applies: collect a conditional progress waiver before releasing the payment, then collect the matching unconditional progress waiver once the payment actually clears. Review how conditional and unconditional waivers work if that order is not already second nature for your AP team.
California uses statutory forms for lien waivers under Civil Code §§ 8132–8138, and deviating from the prescribed language can invalidate a waiver. Those forms are unchanged by SB 61, but the SB 61 change raises the stakes on getting them right because more value is moving at each progress-payment cycle.
SureHold is not a law firm and nothing here is legal advice. For questions about how SB 61 applies to a specific project, contract, or dispute, consult a licensed California construction attorney.
Four Things to Audit in Your Contracts Right Now
1. Update your subcontract templates. A clause that says 10% is unenforceable in new private-works contracts. Update your standard subcontract form before the next bid goes out. A 10% retention clause also signals to subs that your paperwork has not kept up with the law — not the impression you want when you are competing for labor.
2. Do not retroactively amend existing contracts. The law only covers new contracts. If you try to unilaterally reduce retention mid-project on a pre-2026 subcontract, you create ambiguity about which rules govern the rest of the work. Any change to an existing contract should be a written, bilateral change order.
3. Get bond notices into your bid packages. If you intend to rely on the bond exception for any sub category, the written notice must be in the bid solicitation — not a later email. Build it into your standard bid cover letter.
4. Audit your sub-tier flows. Your first-tier subs' contracts with their own suppliers are also capped on new California private works. If a sub is passing 8% retention down to a second-tier supplier on a contract signed in 2026, that is non-compliant — and the supplier may recover attorney fees to correct it.
Retention Release and the Closeout Packet
The retainage release at the end of a project is the moment your lien exposure is highest. Retention is the last money out the door, and a sub who has not signed an unconditional final waiver retains an active lien right against the property until the waiver is in hand.
With 5% retention instead of 10%, subs may push harder for fast release once work is complete — and that pressure is legitimate under the new law. The answer is not to slow-walk the payment; it is to have the final waiver collection automated and ready before the check goes out. A free waiver generator is useful for one-off situations, but across dozens of subs on a commercial project, the only realistic answer is software that ties the release to the signed document.
SureHold's lien waiver software stages the payment and the waiver together, so the unconditional document is in hand before retention clears — not chased down after the fact. That matters more now that the final check is smaller and subs will want it quickly. Learn more about how payment-linked waiver escrow works if you want to understand the mechanics.
The Broader Trend
California is not alone. In December 2025, New York enacted Senate Bill 5655, which makes any contract provision requiring retention above 5% on private construction contracts of $150,000 or more void and unenforceable. Multiple states are converging on 5% as the upper threshold.
If you bid work across state lines, check each state's current retention rules before locking in subcontract terms. Our 50-state lien waiver and payment library covers lien rights per state, and the California lien waiver page has the statutory form citations specific to California projects.
The Takeaway
California SB 61 is live, non-waivable, and applies to every new private-works contract signed in 2026. Audit your subcontract templates, add bond-notice language to bid packages if you need that exception, and make sure your waiver collection process can handle the larger progress payments that come with a lower retention cap. The mechanics of protecting your lien position have not changed — but the dollar amounts at each cycle are bigger, and the margin for error is smaller.
Sources
- California SB 61, full bill text — California Legislative Information
- "Effective January 1, 2026: California SB 61 Caps Retention at 5% on Private Construction Projects" — Buchalter
- "New California Law Limits Private Construction Retention to 5%" — Stoel Rives LLP
- New York SB 5655, bill page — NY State Senate
- "New York Closes Retainage Loophole: SB 5655 Voids Excess Retainage Provisions" — Holland & Knight