By Hardcastle                                         H.B. No. 3104
         77R7036 AJA-D                           
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to interest on amounts withheld from a payment under a
 1-3     construction contract.
 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-5           SECTION 1. Subchapter D, Chapter 35, Business & Commerce
 1-6     Code, is amended by adding Section 35.521 to read as follows:
 1-7           Sec. 35.521.  INTEREST ON RETAINAGE UNDER CONSTRUCTION
 1-8     CONTRACT REQUIRED. (a)  In this section, "retainage" has the
 1-9     meaning assigned by Section 53.001, Property Code.
1-10           (b)  If a contract principally for the construction or repair
1-11     of improvements to real property located in this state contains a
1-12     provision for retainage, the contract must provide for payment to
1-13     the contractor of interest on the retainage.
1-14           (c)  Interest under this section accrues:
1-15                 (1)  at a rate specified in the contract; or
1-16                 (2)  if a rate is not specified in the contract, at the
1-17     prime interest rate.
1-18           (d)  Interest under this section accrues from the time the
1-19     contract payment from which the retainage is withheld is due under
1-20     the contract.
1-21           SECTION 2. Section 53.025, Property Code, is amended to read
1-22     as follows:
1-23           Sec. 53.025.  LIMITATION ON ORDINARY RETAINAGE LIEN. A lien
1-24     for retainage is valid only for:
 2-1                 (1)  the amount specified to be retained in the
 2-2     contract, including any amendments to the contract, between the
 2-3     claimant and the original contractor or between the claimant and a
 2-4     subcontractor; and
 2-5                 (2)  interest required under Section 35.521, Business &
 2-6     Commerce Code.
 2-7           SECTION 3. Subchapter E, Chapter 53, Property Code, is
 2-8     amended by adding Section 53.107 to read as follows:
 2-9           Sec. 53.107.  INTEREST ON RETAINAGE. (a)  An owner who
2-10     retains a percentage of the contract price or the value of work
2-11     under Section 53.101 must pay the contractor interest at the prime
2-12     rate on the amount retained.
2-13           (b)  Interest under this section accrues:
2-14                 (1)  from the time the payment from which a percentage
2-15     is retained is due under the contract; or
2-16                 (2)  if the schedule for payment is not provided in the
2-17     contract, from the time the work for which payment is made is
2-18     completed.
2-19           SECTION 4. Section 53.107, Property Code, as added by this
2-20     Act, applies only to a contract for construction or repair of
2-21     improvements to real property entered into on or after the
2-22     effective date of this Act.  A contract entered into before the
2-23     effective date of this Act is governed by the law in effect
2-24     immediately before that date, and that law is continued in effect
2-25     for that purpose.
2-26           SECTION 5. This Act takes effect September 1, 2001.