Renovation contract — what payment terms and retention should I agree before signing?
About to sign a renovation/fit-out contract and I want the payment terms right so I keep leverage and don't overpay upfront.
- What should it say on payment stages, deposits, retention (holding back a final %), variations (extra work), and completion/snagging?
- What are the red flags?
Trying to sign something fair (the money side of choosing a contractor), not a big deposit and blind trust. What should I insist on?
3 answers
Short answer: structure the money so payment always FOLLOWS progress and you keep leverage to the very end — that means STAGE payments tied to completed, verified milestones (not dates), a SENSIBLE (not huge) deposit, RETENTION (hold back a final chunk, often ~5-10%, released only after snagging is closed and any defects-liability sign-off), VARIATIONS agreed and priced IN WRITING before the extra work is done, and clear COMPLETION + SNAGGING terms. The whole point is that you never pay ahead of work: a contractor who wants most of the money upfront, or no retention, is the red flag. Retention especially is your leverage to get the last 10% of niggles actually finished.
What the contract should say: - Stage payments tied to MILESTONES (not dates): pay on completed, verified stages (e.g. first-fix done, tiling done) — so payment always follows delivered work. Avoid front-loaded schedules. - A sensible deposit: enough to secure materials/mobilise, not most of the value. A demand for a large upfront % is a warning. - RETENTION: hold back a final percentage (commonly ~5-10%), released only after snagging is closed (and ideally after a short defects-liability period). This is your single best lever — it's what gets the final niggles finished (see the defects-liability period). - VARIATIONS (extra work): must be agreed and priced in writing BEFORE the work is done — this stops the bill ballooning through "we had to do X" surprises. No verbal variations. - Completion + snagging: define what "complete" means, a snag list process, and that final payment/retention hinges on snags being fixed. (See avoiding overcharging.) - Scope + spec attached: the itemised scope/materials from the quote forms part of the contract, plus timeline and any penalties for serious overrun.
The red flags: - Large upfront payment / most of the money before real work. - No retention offered, or resistance to holding any back. - No written variations process (so extras get sprung on you). - Vague "complete" with no snagging tied to final payment. - Cash-only, unlicensed, no proper contract at all.
Common mistake: paying a big deposit and staged payments that run AHEAD of the work — then having no money (leverage) left when the finishing quality or the snags disappoint. Tie payment to milestones, hold retention until snagging's closed, get variations in writing, with a licensed finishing and fit-out contractor. What payment-terms clause saved you (or wish you'd had)?
Retention is the clause that actually gets things finished — the times I held back a final 10% until snagging was closed, the little unfinished bits got done fast; the time I paid in full on "completion," the contractor evaporated and I chased snags for months. Milestone payments (not date-based) and variations-in-writing-before-the-work are the other two non-negotiables; verbal "we had to do extra" is how bills balloon. And never a big deposit — enough to mobilise, no more. A contractor comfortable with retention and written variations is usually the one you want; the ones who resist those terms tell you something.
For our office fit-out the milestone-based schedule kept everyone honest — payment released only when a stage was actually done and checked, so we never got ahead of the work. We held retention and it made the snagging painless. The variations-in-writing rule saved a dispute when they claimed extra work we hadn't approved. The red flag I'd add: pressure to sign and pay quickly. A fair contract protects both sides; a contractor who only wants money upfront and no retention is managing THEIR risk by loading it onto you. Milestones, retention, written variations — insist on all three.
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