California has issued Senate Bill 61 (“SB-61”), a significant legal provisions that have a direct impact in the owners and developers of private construction projects in the state. SB-61, which was signed in the law on July 24, 2025, sets a mandatory upper limit for the storage payments for most private construction projects and limits the binding to 5%. This new requirement applies to contracts that were carried out on or after January 1, 2026, and will significantly influence the structure and management of building contracts in California.
When binding, the part of the payments withdrawn from the owners is to ensure a satisfactory completion of the work. While public Construction projects in California have long been a 5% upper limit. Private Construction projects were not strictly governed. SB -61 is now the 5% captain between public and private contracts.
The cap & exceptions
The result of SB-61 is that the owner, developer and “direct customer” (ie the contractor with a direct contractual relationship with the project owner or developer) is now banned from retaining more than 5% of the storage of progress payments and no more than 5% of the overall contractual building contracts. Here are some important exceptions to this rule:
- SB-61 only applies to contracts that were carried out on or after January 1, 2026. The law does not apply retrospectively, which means that existing contracts are not subject to the upper limit.
- SB-61 includes carveuts for some types of projects such as (i) certain living developments and (II) those in which the total price is less than $ 500,000.
- SB-61 does not apply between a contractor and a subcontractor if the subcontractor has to make payment and service bonds available to the contractor, but does not do so.
Politics & Effects
SB-61 should promote fairness and equity in the construction process for the construction work. The supporters of the law, including commuters and organizations organized by stocks, argue that excessive storage influences disproportionately small and minority owner sub-entrepreneurs who are often exposed to cash flow challenges and limited access to capital. By limiting the binding, the law aims to improve the liquidity for contractors and subcontractors, reduce payment disputes and to promote a more integrative construction industry. The owners must now request additional power security in order to correspond to the safety level previously achieved by a higher stop.
In addition to the maintenance upper limit, SB-61 increases the existing immediate payment laws and promotes the timely payment of funds in the entire construction chain. While the law does not change legal payment periods, it complements broader efforts in California to rationalize payment practices and reduce delays that can hinder the project progress.
Preparation for compliance
Owners and developers who do business in California should now prepare for the implementation of SB-61 in January 2026:
- Check and update contracts: Revise the contractual language of the standard form/template to include the 5% storage limit and incorporate the new legal requirements.
- Find legal instructions: Contact legal advisors to evaluate how the new law affects the existing contractual obligations, the requirements for air conditioning and risk management strategies.
- Top-down cooperation: Start at the beginning of the project planning phase with contractors to determine clear expectations of payment plans, storage conditions and the cash flow.
- Rate risk areas: Identify potential pressure points between the owner and contractor and between the owner and the state to reduce problems before you occur.