The Upcoming Retention Ban: What Housebuilders Need to Know

On 24 March 2026 the UK Government issued a press release announcing the “toughest crackdown on late payments in over 25 years.” This follows a consultation that ran between July and October last year which considered a variety of measures to reduce late and non-payments to small businesses. It is stated by the UK Government that the goal of the changes to payment terms are to protect Small and Medium sized Enterprises (SME). It is stated by the Government that the problem of late payments costs the UK economy £11 billion every year. The information they have shared suggests the new rules may be the strictest of their kind in the G7.

The construction sector is to receive special attention in this late payment crackdown – The government explored two options for retentions in construction contracts – introducing a system that required retentions be held by a third party, or banning retentions altogether. They chose to go with the outright ban. Under the current system, developers and main contractors routinely withhold 3-5% of contract / sub-contract value as retention, releasing half at practical completion and the remainder at the end of the defects liability period. These cash retentions will no longer be permitted once the legislation is enacted. The Government has said it intends to hold consultations to work out the final legislative details, so what the new rules will look like is still not clear. Given how widely used retentions are, it will obviously have a significant impact on the industry.

So, what does this mean for the housebuilding sector? For sub-contractors and suppliers, who will have been used to having sums retained by employers, the ban will be a welcome change. It will improve cashflow on projects and lessen financial risk for these parties; losing retention payments to upstream insolvencies will no longer be a concern.

The ban may potentially pose some new difficulties– retentions are presently used by employers and main contractors as a guarantee against incomplete work and unaddressed defects. Losing that guarantee in its current form will prompt employers to seek the security it provided from elsewhere. Other forms of guarantee or performance bonds may be more routinely required, placing a new burden on the shoulders of contractors and/or increasing the overall cost of the project. It may also prompt employers to engage in more rigorous on-site quality checks in order to reduce their exposure to risk, which could result in delays to on-site progress. How all this will be passed downstream to sub-contractors and suppliers will need to be considered.

Whilst improved cash flow is cited as the main advantage, there will almost certainly be side-effects to the new measures. With no more retentions to argue over, contract administration may become a less adversarial process. On the other hand, standard form contracts, governance, and lender requirements will all need updating, and new approaches to payment terms will need adopted. The transition will require time, training, and may cause disruption for firms of all sizes. With long established rules poised to change, the industry will be watching very closely for the outcome of the next consultation and the direction it ultimately sets.

The retention ban is a construction industry specific element of upcoming legislation addressing payment terms. As part of this legislation, The Government also plans to introduce maximum caps on payment terms, a new mandatory interest rate on late payments, and fines for the late raising of payment disputes. If you would like to read more about the new legislation and other construction & engineering subjects, please visit our insights page at Brodies.com.