84R393 NC-F

By: Keffer, Leach, Workman, Deshotel, et al. H.B. No. 1966

A BILL TO BE ENTITLED

AN ACT

relating to an account or bond for construction retainage under certain contracts.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 162.001, Property Code, is amended by adding Subsection (b-1) to read as follows:

(b-1) Funds required under this chapter to be deposited into a construction trust fund account are trust funds.

SECTION 2. Section 162.003(a), Property Code, is amended to read as follows:

(a) An artisan, laborer, mechanic, contractor, subcontractor, or materialman who labors or who furnishes labor or material for the construction or repair of an improvement on specific real property in this state is a beneficiary of any trust funds paid, [or] received, withheld as retainage, or required to be deposited into a construction trust fund account under this chapter in connection with the improvement.

SECTION 3. Section 162.004(a), Property Code, is amended to read as follows:

(a) This chapter does not apply to:

(1) a bank, savings and loan, or other lender;

(2) a title company or other closing agent; or

(3) a corporate surety who issues a payment bond covering the contract for the construction or repair of the improvement, except as provided by Section 162.0064.

SECTION 4. Section 162.005, Property Code, is amended by adding Subdivisions (7) and (8) to read as follows:

(7) "Construction trust fund account" means an account in a federally insured financial institution into which are deposited only funds required by Section 162.0061(a) to be deposited in a construction trust fund account and other funds deposited by the property owner that are necessary to pay charges imposed on the account by the financial institution.

(8) "Retainage" is an amount or agreed percentage of money in a construction contract between an owner and a contractor that is withheld from a payment and not due to be paid until completion of the contract or on an agreed date.

SECTION 5. Subchapter A, Chapter 162, Property Code, is amended by adding Sections 162.0061, 162.0062, 162.0063, 162.0064, 162.008, and 162.009 to read as follows:

Sec. 162.0061. CONSTRUCTION TRUST FUND ACCOUNT REQUIRED IN CERTAIN CIRCUMSTANCES. (a) Except as provided by this section or Section 162.0062, a property owner who enters into a construction loan or financing agreement to pay toward the improvement of real property that is secured wholly or partly by a lien on the property or improvement shall deposit in a construction trust fund account not later than contemporaneously with payment to a contractor any money withheld from the payment as retainage. The deposited funds are held in trust for the benefit of a person described by Section 162.003(a). Trust funds deposited in a construction trust fund account under this section shall be used first to satisfy the owner's obligations and liabilities for retainage and a claimant's rights under Chapter 53. Trust funds remaining in the construction trust fund account after the satisfaction of those obligations, liabilities, and rights may be used by the owner for other construction payments under this chapter or direct costs of the owner. Trust funds under this section are not subject to seizure, offset, or taking by the financial institution or a creditor of the owner. This subsection does not alter the owner's obligation or liability under any other law.

(b) This section does not apply to a property owner who enters into a construction loan or financing agreement to pay toward the construction, remodeling, or repair of a single-family house or duplex used for residential purposes or for related land development.

(c) This section does not apply to a property owner improving real property if the value of the improvement to be made is $500,000 or less.

Sec. 162.0062. BOND IN LIEU OF TRUST FUND ACCOUNT. (a) Instead of establishing a construction trust fund account under Section 162.0061(a), a property owner may obtain or furnish a bond as described by Subsection (b) or (c).

(b) A property owner may obtain a bond furnished by the contractor that meets the requirements of Subchapter I, Chapter 53.

(c) A property owner may furnish a bond that:

(1) meets the requirements of Section 162.0063;

(2) is in a penal sum at least equal to 10 percent of:

(A) the value of the total of the original contract amount; and

(B) normal and usual extras not exceeding 15 percent of the original contract amount;

(3) is conditioned on prompt payment for retainage owed for all labor, subcontracts, materials, and specially fabricated materials furnished by any person to accomplish work required under a contract between a contractor and an owner; and

(4) is for the protection and use of each claimant who is due prompt payment under Subdivision (3).

Sec. 162.0063. ADDITIONAL BOND REQUIREMENTS. A bond furnished under Section 162.0062:

(1) must be executed by:

(A) the contractor as principal if furnished under Section 162.0062(b) or by the owner as principal if furnished under Section 162.0062(c); and

(B) a corporate surety authorized to execute surety bonds in this state, as provided by Subchapter A, Chapter 3503, Insurance Code; and

(2) may not be subject to any notice or perfection obligation other than as required by Chapter 53.

Sec. 162.0064. LIMITATION ON ACTION ON BOND. A suit may not be filed on a bond furnished under Section 162.0062(c) after the first anniversary of the later of:

(1) the date of completion of the contract between the owner and contractor; or

(2) the date on which retainage is due to the contractor.

Sec. 162.008. MANAGEMENT OF CONSTRUCTION TRUST FUND ACCOUNTS. (a) If a property owner required to maintain a construction trust fund account under Section 162.0061 opens and maintains a separate construction trust fund account with the financial institution for each project subject to this subchapter, the periodic statement received from the financial institution must:

(1) refer to the account as a "construction trust fund" account; and

(2) identify the project for which the construction trust fund account is maintained.

(b) If a property owner required to maintain a construction trust fund account opens and maintains a construction trust fund account with the financial institution into which funds for two or more projects subject to this subchapter are deposited:

(1) the periodic statement received from the financial institution must refer to the account as a "construction trust fund" account; and

(2) the owner shall maintain an account record for the construction trust fund account that provides information relating to:

(A) the amount of the funds in the account for each project and the date the funds were deposited;

(B) the date and amount of each disbursement from the account and the person to whom the funds were disbursed; and

(C) the current balance of the account.

(c) For each construction trust fund account maintained by the property owner under Subsection (b), the owner shall maintain the account record for each construction project for which trust funds have been deposited.

Sec. 162.009. DISCLOSURES TO BENEFICIARIES; SUSPENSION OF PERFORMANCE. (a) Not later than the 14th day after a property owner receives a written request from a person who is a beneficiary of trust funds, the property owner shall provide the beneficiary with:

(1) if the owner is maintaining a construction trust fund account under Section 162.0061:

(A) a copy of the periodic statement received from the financial institution regarding the construction trust fund account into which the trust funds of which the person is a beneficiary have been deposited or an original executed authorization sufficient to allow the requesting person to obtain the periodic statement; and

(B) the account record required to be maintained by the owner with respect to the construction project for which the trust funds have been deposited; or

(2) if a bond has been obtained or furnished under Section 162.0062, proof of a bond complying with that section.

(b) If a property owner does not comply with Subsection (a) or the information provided under that subsection does not demonstrate that the owner has complied with Section 162.0061 or 162.0062, a beneficiary may suspend contractually required performance the 10th day after the date the beneficiary gives the owner written notice that states the intent of the beneficiary to suspend performance and the reason for suspending performance if the owner does not cure the grounds for suspension under Subsection (c) before the beneficiary suspends performance.

(c) An owner may cure any grounds for a suspension under Subsection (b) by complying with Section 162.0061 or 162.0062 and providing proof of that compliance to the beneficiary.

(d) A beneficiary that has suspended performance under Subsection (b) is not:

(1) required to supply further labor, services, or materials before the date the owner cures the grounds for suspension as provided by Subsection (c) and pays the beneficiary's costs for suspending performance and for resuming performance; or

(2) responsible for damages resulting from suspending performance, unless the beneficiary continues to suspend performance after the 10th day after the date the owner cured the grounds for suspension as provided by Subsection (c) and paid the beneficiary for the costs described by Subdivision (1).

SECTION 6. Section 162.031, Property Code, is amended by amending Subsection (b) and adding Subsection (b-1) to read as follows:

(b) It is an affirmative defense to prosecution or other action brought under Subsection (a) with respect to trust funds described by Section 162.001(a) or (b) that the trust funds not paid to the beneficiaries of the trust were used by the trustee to pay the trustee's actual expenses directly related to the construction or repair of the improvement.

(b-1) It is an affirmative defense to prosecution or other action brought under Subsection (a) with respect to trust funds described by Section 162.001(b-1) that the trust funds:

(1) [or] have been retained by the trustee, after notice to the beneficiary who has made a request for payment, as a result of the trustee's reasonable belief that the beneficiary is not entitled to such funds; or

(2) have been retained as authorized or required by Chapter 53.

SECTION 7. The change in law made by this Act applies only to an original construction contract entered into on or after the effective date of this Act. An original construction contract entered into before the effective date of this Act is governed by the law as it existed immediately before that date, and that law is continued in effect for that purpose.

SECTION 8. This Act takes effect September 1, 2015.