Retention is one of those building industry concepts that homeowners often hear mentioned but rarely understand fully until they need to rely on it. Put simply: it's the practice of holding back a percentage of the contract value after practical completion, releasing it only once the contractor has returned to fix any defects that emerge in the months after the build is finished.
Done correctly, retention is one of the most effective tools a homeowner has. Done badly, or not at all, it leaves you paying in full for work that might still have problems you haven't discovered yet.
How Much Retention to Hold
The standard retention rate in domestic building contracts is 5% of the final contract value. On a £100,000 extension, that's £5,000 held back. On a larger project it scales accordingly, and some contracts specify a reducing retention (a higher percentage during the build, dropping to a lower percentage at practical completion).
For commercial projects, retention rates and processes are defined by the Housing Grants, Construction and Regeneration Act 1996 and its amendments. Domestic homeowner contracts aren't bound by this legislation in the same way, but the JCT Homeowner Contract includes retention provisions as standard. If you're using a bespoke or informal contract, you'll need to include retention terms explicitly.
When Is Retention Released?
There are typically two release points in a JCT-style contract:
At practical completion: Half the retained amount is typically released. So on a 5% retention of £5,000, you'd release £2,500 when the build is finished and you've signed off practical completion.
At the end of the defects liability period: The remaining £2,500 is released once the contractor has returned and remedied any defects reported during the defects period (typically six to twelve months). This release should not happen automatically: it should be triggered by you confirming that all reported defects have been resolved to your satisfaction.
Important: Do not release the second half of retention until every defect on your snagging list has been fixed. Once the money is gone, your leverage goes with it. Contractors who have moved on to other projects are notoriously difficult to chase back for minor remedial work once they've been paid in full.
The Defects Liability Period
The defects liability period is the window after practical completion during which the contractor remains obligated to return and fix defects in their own work. It's not a warranty in the consumer sense. It's a contractual obligation, and it's only as strong as the contract that creates it.
Six months is the minimum you should accept. Twelve months is better, and there are good reasons for it: some defects only show up in particular weather conditions. A flat roof might look fine in summer but develop leaks in winter. New plaster may crack as it settles and dries out over the first heating season. A twelve-month defects period gives you a full cycle of seasons to identify problems before releasing the final retention.
Keep a snagging diary throughout the defects period. Any time you notice something that looks like it may be a defect, photograph it and note the date. At the end of the period, compile a formal snagging list and issue it to the contractor in writing, giving a reasonable deadline for remediation (typically 28 days for non-urgent items).
When Contractors Push Back
Some contractors, particularly smaller or less experienced ones, will resist retention clauses. The arguments vary: "I've never needed to do that before," "it shows you don't trust me," or "I need the cash flow." None of these are valid reasons to abandon retention.
It's worth explaining that retention protects the contractor too, in a sense: it gives them a defined mechanism for returning and remedying defects during the liability period, rather than facing an open-ended liability. A contractor who genuinely does good work has nothing to fear from a standard retention clause, because they expect to release no defects.
If a contractor absolutely refuses to accept any form of retention, walk away. Or if you proceed without it, reduce your final payment milestone to as late in the process as possible and be very clear in writing about your rights regarding defects under consumer law.
What Retention Covers and What It Doesn't
Retention is specifically for defects in the contractor's own work. It's not a general fund for changes you want to make, disputes about materials you approved, or improvements you've decided you'd like after the fact.
A defect is something that doesn't meet the specification agreed in the contract: a door that doesn't close properly, a tile that has cracked, a window seal that has failed, pointing that's crumbling. These are legitimate retention issues. "I've changed my mind and want a different finish" is not.
The Formal Release Process
At the end of the defects period, you should issue a formal notice confirming that the defects have been remedied (or listing any that remain outstanding). The JCT Homeowner Contract includes a mechanism for this. The contractor then makes a formal application for the release of the retention, which you pay within the agreed timeframe, subject to any deductions for outstanding defects.
If there are outstanding defects that the contractor refuses to address, you can deduct the reasonable cost of having someone else do the remediation work from the retention. You cannot simply keep the retention indefinitely and use it as a bargaining chip for unrelated matters. That's not what it's for, and it would expose you to a legitimate counter-claim.
Handle it fairly, document everything, and retention will serve you well. It's a standard industry mechanism for good reason.