Retention Money Not Released? Your Rights Under NZ Law (CCA)
Retentions not released on a commercial NZ job? Since 5 Oct 2023 retention money is held on trust in a separate account — the head contractor cannot use it as working capital. Here is how to get yours back.
By Steve Parker · Trueworks · NZ construction estimation · 7 min
Since 5 October 2023, your retentions on a commercial job are not the head contractor's funds to spend — by law they sit on trust in a separate bank account. If they are being withheld, the law is now firmly on your side.
What you'll learn
Why your retention money is legally protected and where it must be held
The practice of tying your release to head-contract completion — and why to push back
The exact steps to get withheld retentions released, including adjudication
Quick answer: Under the Construction Contracts Act 2002, strengthened by the Construction Contracts (Retention Money) Amendment Act 2023 (in force 5 October 2023), retention money on a commercial construction contract is automatically held on trust the moment it is withheld. It must sit in a separate complying bank account with proper ledger records and cannot be mixed with the holder's working capital — so a head contractor cannot lawfully use your retentions to fund its business. If your retentions are not released, confirm the trust position, issue a payment claim for the amount due, and if it is still not paid, use the Construction Contracts Act adjudication process — a fast statutory route. Pay-when-paid clauses are void.
Why retentions exist — and the problem the law had to fix
Retentions are a slice of each progress payment the party above you holds back as security — typically around 5% to 10% of the value of work done, often released in two stages: half at practical completion, the balance at the end of the defects liability period. The idea is reasonable enough: it gives the head contractor (or the principal) a financial incentive for you to come back and fix any defects.
The problem for Auckland subcontractors was never the concept. It was what happened to the funds. For years, head contractors treated retentions as ordinary working capital — your 5% propped up the balance sheet above you. When a builder went under, as several large New Zealand firms did in the years after the Canterbury rebuild, the retentions simply vanished into the insolvency. Subbies who had done the work and fixed every snag lined up as unsecured creditors and recovered cents in the dollar, if anything.
That is the failure the law was written to stop. Retention money is now ring-fenced from the holder's business so that, if the firm above you collapses, your retentions are still there.
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What the Construction Contracts Act now requires
The original retentions regime came in under the Construction Contracts Act 2002. It was the Construction Contracts (Retention Money) Amendment Act 2023, in force from 5 October 2023, that gave it real teeth.
The core change is that retention money is now held on trust automatically. The holder does not have to declare a trust or sign anything — the trust arises by operation of law the moment retention money is withheld on a commercial construction contract. That single shift changes the legal character of your retentions: they are no longer just a debt the head contractor owes you, they are your funds held by them as trustee.
From that flow the practical obligations. The holder must keep retention money in a separate bank account (or in some cases other complying financial protection, such as an instrument from a recognised provider), kept apart from the firm's own funds. They must keep proper accounting records — a ledger showing what is held for whom — and must give you information about your retentions on request and at set intervals. They cannot co-mingle your retentions with their working capital, and they cannot use them to run the business. Breaches now carry offence provisions and penalties, including for directors.
One thing to keep clear: this regime applies to commercial construction contracts. The trust and separate-account rules are the protection most Auckland subbies are relying on, because most subcontract work sits on commercial jobs. Standard residential building contracts are a different setting, and the retentions mechanism in those is contractual rather than driven by this trust regime.
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The "release on head-contract completion" trap
Here is a practice worth pushing back on. Many subcontracts try to tie the release of your retentions not to your completion, but to completion of the whole head contract — or to the head contractor first receiving its own retentions from the principal.
Think about what that means on a large Auckland project. You finish your fit-out or your services rough-in early, in year one of a three-year build, and you fix every defect on your scope. Yet your retentions sit unreleased until the entire project reaches practical completion and the head contract's defects period expires — potentially years after your work, your defects liability, and your risk have all ended.
Two points are worth knowing. First, a clause that makes your payment conditional on the head contractor being paid by someone else looks a lot like a pay-when-paid mechanism, and pay-when-paid clauses are void under the Construction Contracts Act. You cannot be made to wait for your payment on the basis that a third party up the chain has not paid. Second, even where a release date is tied to your own defects liability period rather than someone else's payment, the timing should track your scope, not the whole job. When you are negotiating a subcontract, this is one of the clauses to read closely and, where you can, amend so your release is keyed to completion of your own works.
CCA retention obligations on the holder
The table below sets out, in plain terms, what the party holding your retentions must do under the strengthened Construction Contracts Act regime.
Held on trust — Retention money is automatically held on trust for you from the moment it is withheld — by operation of law, with no need for the holder to declare a trust.
Separate account — Must be kept in a separate bank account (or other complying financial protection), apart from the holder's own funds and working capital.
Proper records — Must keep accounting records identifying the retention money held for each party, and report that information to you on request and at set intervals.
No co-mingling — Must not mix your retentions with the firm's general funds or use them to fund the business; misuse can be an offence with penalties, including for directors.
Release — Must be paid out when due under the contract; release cannot lawfully be made conditional on payment from a third party (pay-when-paid is void).
The mechanics of how much is held and when it is released usually live in your contract. On jobs let under the standard construct-only conditions, retentions are dealt with in the retentions provisions at NZS 3910 §17, which sit alongside the progress-payment machinery — we walk through how NZS 3910 §12 progress payments and §17 retentions work in a companion note.
What to do when your retentions are not released
If a release date has passed and the payment has not landed, work through these steps in order.
Confirm the trust and account position. You are entitled to information about your retentions. Ask the holder, in writing, to confirm how much retention money they hold for you, in which complying account, and on what release dates. A holder operating properly can answer in a sentence; a holder who cannot is a warning sign worth acting on quickly.
Check the contract against the law. Pull out your release dates and the trigger for each. If release is tied to head-contract completion or to the head contractor being paid, treat that as a clause to challenge — a pay-when-paid trigger is void, and the timing should follow your own scope and defects period.
Issue a payment claim. Serve a compliant payment claim under the Construction Contracts Act for the retention amount now due. This puts the holder on a clock: if they dispute it, they must respond with a compliant payment schedule within the contractual or statutory timeframe. Fail to schedule in time and the holder can become liable for the full claimed amount as a debt.
Use adjudication if it is still not paid. Adjudication is the fast statutory dispute route under the Act — weeks rather than the months a court takes, decided by an independent adjudicator, and the determination is enforceable. For a defined retention sum that is plainly overdue, it is usually the most efficient lever you have.
Watch for insolvency signals. If the firm above you looks financially shaky, the separate-account regime is exactly what protects you — but move fast. Get written confirmation of the held funds and take advice on enforcing the trust before any administrator or liquidator is appointed.
Most retention disputes are not really arguable. The work is done, the defects period is over, the sum is defined — the only question is getting the holder to act. The payment-claim-then-adjudication path is built for precisely that.
This is general information, not legal advice — get advice on your specific contract.
FAQ — retention money in New Zealand
Q1: Can a head contractor legally use my retention money to fund their business? No. Since 5 October 2023, retention money on a commercial construction contract is held on trust and must sit in a separate complying account, kept apart from the holder's own funds. Using your retentions as working capital is a breach of the Construction Contracts Act and can carry penalties.
Q2: What can I do if my retentions are not released on time in NZ? First ask the holder in writing to confirm the amount held and the account. Then serve a compliant payment claim for the overdue retention. If it is still not paid, use adjudication under the Construction Contracts Act — a fast, enforceable statutory route for a defined overdue sum.
Q3: Does the retention trust apply to residential jobs? The trust and separate-account regime is aimed at commercial construction contracts, which is where most subcontract work sits. Standard residential building contracts handle retentions contractually rather than through this trust regime, so check what your specific contract says.
Q4: My contract says retentions are released when the whole project finishes. Is that enforceable? Be cautious. If the trigger is really the head contractor being paid by the principal, that is a pay-when-paid mechanism and pay-when-paid clauses are void under the Construction Contracts Act. Even where release is tied to a defects period, the timing should track your own scope, not the entire head contract — this is a clause worth challenging or amending.
Q5: How much retention can be held back from a subcontractor in NZ? The amount and timing are set by your contract, commonly around 5% to 10% of the value of work done, often released half at practical completion and the balance after the defects liability period. On jobs under the standard construct-only conditions the mechanism sits at NZS 3910 §17. Whatever the figure, once withheld on a commercial job it must be held on trust.
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