How long can an owner withhold any retained funds after completion of a
An owner must pay any retained funds, withheld under a construction contract,
to the contractor within 45 days after work has been completed on the property
(Cal. Civ. Code §8838). Completion is defined as being any of the following:
the date a certificate of occupancy was issued, the date of completion on a
recorded notice of completion, the date the owner accepted the work or moved
onto the property or the date of a cessation of labor on the property for a
continuous period of 30 days or more if the owner has recorded a notice of
cessation. (Cal. Civ. Code §§ 8180, 9200).
If the money was withheld because of a contractual
disagreement over the work, the owner may withhold from the final payment up
to 150% of the estimated value of the disputed amount (Cal. Civ. Code § 8814).
The original contractor sometimes will redo
unsatisfactory work in accordance with the contract. If so, the original
contractor must give notice to the owner when the redone work has been
completed. Within 10 days of receiving this notice, the owner must either
approve or disprove of the work and within 10 days of accepting the disputed
work, the owner must release the funds. (Cal. Civ. Code §8816). For example, an
owner and a contractor have a contract to remodel the owner's kitchen. Part of
the remodeling includes a black marble countertop. At the end of the project,
the owner sees that the counter is brown marble and withholds the funds for the
countertop. The contractor replaces the counter with the proper color and sends
notice to the owner. The owner then has 10 days to inspect the work, and if he
or she accepts the work, he or she has 10 days to pay the withheld funds to the
In the event the retention payments are not made
within the time periods required, the owner will be subject to a charge of 2%
per month on the improperly withheld amount, in lieu of any interest otherwise
due. Furthermore, in any action for the collection of the wrongfully withheld
funds, the prevailing party is entitled to attorney's fees and costs (Cal.
Civ. Code § 8818).
This laws regarding withheld payments cannot be
waived (Cal. Civ. Code §8818).
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