How do retentions work on building contracts in NZ?
Short answer
On commercial construction (rare on residential), the head contractor holds back a percentage of each progress payment as 'retention money', released at completion and after a defects period. The Construction Contracts (Retention Money) Amendment Act 2023 requires that retentions be held in trust — separate from the contractor's general cash. This protects subbies if the head contractor goes broke.
Source: Construction Contracts (Retention Money) Amendment Act 2023. Updated May 2026.
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Check a builderKey facts
- Mandatory trust account regime from 5 October 2023
- Applies to construction contracts (commercial usually; rare on small residential)
- Retention money is the subbie's money, not the contractor's working capital
- Trust must be in a separate account with a registered NZ bank
- Trustee duties under the Trustee Act apply
Why the law changed
When Mainzeal collapsed in 2013, subbies lost millions in retention money the head contractor had spent on general operating costs. The 2023 amendment closes that loophole — retentions are now in a ring-fenced trust account.
Practical impact on homeowners: minimal directly, but if your builder uses subbies extensively (most do), the subbies are now less exposed to your builder's cashflow.
Residential context
Most small residential contracts don't use retentions in this technical sense. They use progress payments with a final 5-10% holdback against the defects period.
If you're using a written contract template that mentions 'retentions' on a residential build, ask whether it's literal retention money (subject to the trust regime) or just a final-claim holdback. They're treated differently.
Knowing the rules is half the job. The other half is knowing who you're hiring. Check any NZ builder against the public record: company status, licensing and insolvency notices, from the official NZ sources.
Related questions
Sources: Construction Contracts (Retention Money) Amendment Act 2023; Construction Contracts Act 2002. General information for NZ homeowners, not legal advice. Building rules change and vary by council, so confirm critical details on the official source before acting. Last updated 2026-05.