By Wentworth S.B. No. 1597
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to retainage payments under certain construction
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 35.52, Business & Commerce Code, is
1-6 amended to read as follows:
1-7 Sec. 35.52. LAW APPLICABLE TO CONSTRUCTION CONTRACTS.
1-8 (a) In this section:
1-9 (1) "Prime rate" means the prime rate as published in
1-10 the Wall Street Journal on the date a contract is signed, or if no
1-11 rate is published on that date, the last rate published before the
1-12 date the contract is signed.
1-13 (2) "Retainage" means an amount representing part of a
1-14 contract payment that is not required to be paid to a person who
1-15 performs labor, furnishes material, or delivers specially
1-16 fabricated material within the month following the month in which
1-17 the labor is performed, the material is furnished, or the specially
1-18 fabricated material is delivered.
1-19 (3) "Subcontractor" means a person who furnishes
1-20 labor, materials, or specially fabricated materials to fulfill an
1-21 obligation to an original contractor or a subcontractor to perform
1-22 all or part of the work required under an original contract.
1-23 (b) If a contract is principally for the construction or
1-24 repair of improvements to real property located in this state and
2-1 the contract contains a provision that makes the contract or any
2-2 conflict arising under it subject to the law of another state, to
2-3 litigation in the courts of another state, or to arbitration in
2-4 another state, that provision is voidable by the party that is
2-5 obligated by the contract to perform the construction or repair.
2-6 (c) [
(b)] A contract is principally for the construction or
2-7 repair of improvements to real property located in this state if
2-8 the contract obligates a party, as its principal obligation under
2-9 the contract, to provide labor, material, or labor and materials,
2-10 for the construction or repair of improvements to real property
2-11 located in this state as a general contractor, [ or] subcontractor,
2-12 or material supplier.
2-13 (d) [ (c)] A contract is not principally for the construction
2-14 or repair of improvements to real property located in this state
2-16 (1) the contract is a partnership agreement or other
2-17 agreement governing an entity or trust;
2-18 (2) the contract provides for a loan or other
2-19 extension of credit and the party promising to construct or repair
2-20 improvements does so as part of its agreements with the lender or
2-21 other extender of credit; or
2-22 (3) the contract is for the management of real
2-23 property or improvements and the obligation to construct or repair
2-24 is part of that management.
2-25 (e) [ (d)] Subsections (c) [ (b)] and (d) [ (c)] of this
2-26 section are not an exclusive list of situations in which a contract
2-27 is or is not principally for the construction or repair of
3-1 improvements to real property located in this state.
3-2 (f) Except as provided by Subsection (g), retainage withheld
3-3 under a contract principally for the construction or repair of
3-4 improvements to real property located in this state accrues
3-5 interest at the prime rate. Interest on retainage begins accruing
3-6 on the date payment is due for the labor performed, material
3-7 furnished, or specially fabricated material delivered.
3-8 (g) Any retainage withheld after the 45th day after the date
3-9 work is completed accrues interest at 1-1/2 percent each month.
3-10 For purposes of this subsection, work is completed on the date:
3-11 (1) an affidavit or notice of completion is filed and
3-12 delivered; or
3-13 (2) the work is actually completed, if an affidavit or
3-14 notice of completion is not filed and delivered.
3-15 (h) Interest stops accruing on retainage owed by the owner
3-16 of the real property on the earlier of the date:
3-17 (1) the retained funds are delivered;
3-18 (2) the retained funds are mailed, if the funds are
3-19 delivered not later than the third day after the date the funds are
3-20 mailed; or
3-21 (3) a judgment is entered in an action brought to
3-22 recover retained funds.
3-23 (i) Interest on retainage owed by a person other than an
3-24 owner stops accruing on the later of the date:
3-25 (1) the owner's interest on retainage stops accruing
3-26 under Subsection (h) if payment of the retained funds is made to
3-27 the party owed the funds on or before the seventh day after the
4-1 date the person received the funds; or
4-2 (2) the person pays the funds.
4-3 (j) For purposes of Subsection (i), payment of the retained
4-4 funds is considered made on the earlier of the date:
4-5 (1) the retained funds are delivered;
4-6 (2) the retained funds are mailed, if the funds are
4-7 delivered not later than the third day after the date the funds are
4-8 mailed; or
4-9 (3) a judgment is entered in an action brought to
4-10 recover the retained funds.
4-11 (k) A provision of this section may not be waived by
4-12 contract or otherwise.
4-13 SECTION 2. (a) This Act takes effect September 1, 2001.
4-14 (b) The changes in law made by this Act apply only to a
4-15 contract executed on or after September 1, 2001. A contract
4-16 executed before September 1, 2001, is governed by the law as it
4-17 existed on the date the contract was executed, and the former law
4-18 is continued in effect for that purpose.