A Trap For The Unwary Owner, Lender, And General Contractor: Avoiding Criminal Liability And Civil Penalties In Connection With Tennessee Construction Projects
With more than 900 lawyers across 18 offices, Seyfarth Shaw LLP provides advisory, litigation, and transactional legal services to clients worldwide. Our high-caliber legal representation and advanced delivery capabilities allow us to take on our clients’ unique challenges and opportunities-no matter the scale or complexity. Whether navigating complex litigation, negotiating transformational deals, or advising on cross-border projects, our attorneys achieve exceptional legal outcomes. Our drive for excellence leads us to seek out better ways to work with our clients and each other. We have been first-to-market on many legal service delivery innovations-and we continue to break new ground with our clients every day. This long history of excellence and innovation has created a culture with a sense of purpose and belonging for all. In turn, our culture drives our commitment to the growth of our clients, the diversity of our people, and the resilience of our workforce.
For any "prime" or general construction contract that is $500,000 or greater and all subcontracts thereunder (regardless of amount), Tennessee law requires that the owner
For any “prime” or general construction contract
that is $500,000 or greater and all subcontracts thereunder
(regardless of amount), Tennessee law requires that the owner (and
by implication, any construction lender funding construction draws
and any general contractor responsible for payment to
subcontractors) deposit the amount of any retainage in a
third-party, interest-bearing escrow account with a financial
institution at the time the retainage is withheld. (TN Code § 66-34-104.)
The party responsible for depositing the fund must provide
written notice to any prime contractor of its compliance with such
statute, including identifying the name of the escrow holder, the
account number, and the amount of funds retained in such account,
and upon the satisfactory completion of the contract, the party
owing the retainage must provide an executed release.
Compliance with these statutory requirements cannot be waived by
contract or course of dealing. Failure to comply will result in a
$300 per day penalty for each day that the retained funds are not
deposited into the required escrow account and will constitute a
Class A misdemeanor.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
