Retentions: is your retention money safe, and when do you get it back?

Retentions are money a head contractor holds back from each payment to a subcontractor, as security for the work. On commercial construction contracts made or renewed since 5 October 2023, that money belongs to the subcontractor. It is held on trust, in a trust bank account or covered by a bond or insurance, and it must be paid out once the subcontractor’s work is done.

Nobody signs up for retentions by accident. You see them in the tender, you price the job knowing a slice of every payment will be held back, and you go in trusting that the money will be looked after and come back when it should. That trust is reasonable, and the law is on your side. What most subcontractors don’t have is a clear picture of what the law actually says, and what they can do to keep an eye on their own money in the meantime. It matters, because a job isn’t commercially finished until the retention is back in your account, and that can be a year or more after you have packed up and left the site.

Looking for the clause that keeps goods you supplied yours until you are paid? That is retention of title, a different thing.

Which jobs the rules cover

The retention rules in the Construction Contracts Act 2002 apply to commercial construction contracts. They don’t apply to work done for a homeowner. The current version, with its trust accounts, reporting and fines, applies to contracts made on or after 5 October 2023, and to older ones renewed on or after that date.

Nobody is required to hold retentions. But once a contract allows money to be held back, the rules apply, and the amount becomes retention money from the moment the contract allows it to be held, whether or not anyone has worked it out yet.

Your money, held on trust

Retention money is yours. The head contractor holds it on trust for you, and it stays trust money even if the head contractor doesn’t follow the rules. That means it is out of reach of the head contractor’s other creditors. The head contractor has two ways to hold it:

• In a trust bank account at a registered New Zealand bank, with a separate record for each subcontractor and each contract.
• Covered by insurance, a bond or a guarantee from an insurer or bank that is independent of the head contractor.

Any interest the account earns belongs to the head contractor unless your contract says otherwise. And the money can only be used to put right defects in your own work if the head contractor gives you written notice at least 10 working days beforehand.

Can I ask to see where my retention money is?

Yes. The head contractor has to keep accounting records for your retention money, and you can inspect them at any reasonable time, free of charge. The head contractor also has to send you a report when the money is first held, and then at least every three months until it is paid out.

Asking is ordinary, and it is your right. The report that arrives (or doesn’t) tells you a good deal about how the money is being looked after.

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When are retentions released?

The Act sets limits on what a contract can say about release:

• Release can depend only on your own work. A term that ties it to anything else, such as the head contractor being paid or someone else finishing, has no effect.
• It can’t be due later than the day you have done everything your contract requires, to the standard agreed. MBIE’s guidance reads this as on completion of your own work, while noting that some work isn’t complete until the whole project is handed over.
• Late money earns interest, from the day it was due until the day it is paid, at the rate set in regulations or any higher rate in your contract.
• No admin fees. You can’t be charged for the head contractor looking after your retention money.

The Act doesn’t cap how much can be held. In practice, subcontracts often use a sliding scale, such as 10% of the first part of the subcontract and 5% of the rest, up to a maximum. The release dates in your own subcontract are the ones to know, and to put in your diary the day you sign.

What happens to retentions if the head contractor fails

If the head contractor goes into receivership or liquidation, the receiver or liquidator becomes the trustee of the retention money. They must tell you within 10 working days that they have been appointed, and they are entitled to take their reasonable fees and costs out of the trust money.

The collapse of Stanley Construction shows why the detail matters. When it went into liquidation in September 2019, its liquidators reported on day one that it appeared there would be “a shortfall in the retentions held by the companies”. That was under the earlier rules, before separate trust accounts were required. Which of the money the liquidators later recovered belonged to the subcontractors ended up in court. In 2025 the High Court found that retention money later paid out by project owners was held on trust for the subcontractors, and could not simply go into the liquidators’ costs. As at late 2025, news reports said none of it had yet reached the subcontractors.

Before the current rules, some head contractors used retention money to cash flow the project, and if something happened to the project, the money was gone. The 2023 rules put a separate account, regular reporting and real fines behind the trust.

If it isn’t being held properly

Not holding retention money as the Act requires is an offence. A head contractor faces a fine of up to $200,000 for each offence, and each of its directors up to $50,000. Failing to keep the records or send the reports carries fines of up to $50,000. If you believe a head contractor isn’t following the rules, you can contact MBIE.

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Trust, with your eyes open

Retentions are part of the deal on most commercial work, and going in trusting the head contractor is reasonable. The law supports that trust. What gives you peace of mind is knowing what the law says, and choosing to keep an eye on your money while it is somebody else holding it, sometimes for a year or more after the job.

Part of that is knowing who is holding it. Look at the director as well as the company: how long the company has been around, and how many other companies that director has opened and closed. A business set up recently, by someone with a trail of closed companies behind them, is holding your money for a long time. Until the retention is back in your account, the job isn’t commercially complete.

What you can do to keep an eye on it

• Check who will be holding it, before you sign. The company and its director, on the Companies Office register. You can search a director by name, without an account, and see the companies they have been part of, including ones since closed. How to do it: checking a customer first.
• Know the rate, the cap and the release dates. And price the time your money is held, the same as any other cost of the job.
• Put the release dates in the diary the day you sign, so the money is expected rather than chased.
• Ask for the report and look at the records. Every three months at least, and whenever you want to check.
• Claim interest if release is late. The Act gives it to you.
• Speak up if it isn’t being held properly. To the head contractor first, and to MBIE if that goes nowhere.

And if you are about to sign a head contractor’s subcontract, the retention terms are one of the things worth reading closely: signing their contract.

This page is education and commercial insight from our own research and experience, not legal advice. Do your own research, and get legal advice for your own situation.