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Retention money in construction: using performance and warranty retentions correctly

Retention money in the construction contract: how performance and warranty retentions differ, when they apply and their relation to the right to withhold under section 1052 ABGB.

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20 June 2026 · Mag. Bernhard Brandauer, Rechtsanwalt

Anyone who commissions a construction project wants to be secured against defects and against the contractor’s insolvency. A proven means is to withhold part of the remuneration. The construction contract uses two terms for this that are often confused: the performance retention and the warranty retention.

Neither retention is a statutory matter of course. They have to be agreed by contract or follow from an agreed ÖNORM. This has to be distinguished from the statutory right to withhold payment, which applies even without an express agreement in case of defects.

This article explains how performance retention and warranty retention differ, when they are available and how they relate to the right to withhold payment under section 1052 ABGB. From a lawyer’s perspective, precise knowledge of these securities is worthwhile because they determine your position with defects.

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Answer one or two questions about the basis and the type of retention. You will receive an initial classification.

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01 Question 1

On what do you want to base the retention of part of the remuneration?

A retention has to be agreed by contract. In addition, there is a statutory right to withhold payment for defective or incomplete work.

All paths at a glance

Overview of all answers.

01

The performance retention secures you during the construction phase.

If a performance retention is agreed, you may withhold an agreed share from the ongoing instalments. It secures you against defects and non-completion during execution and is generally settled on handover of the works. The amount and settlement follow from your contract or the agreed ÖNORM.

The contractor may offer to replace the withheld amount with a bank guarantee. Check such a guarantee closely for scope, term and callability before you release the cash amount.

02

The warranty retention secures your warranty claims after handover.

A warranty retention is withheld from the final invoice after handover and secures your warranty claims during the warranty period. For construction works, the warranty period under section 933 of the Austrian Civil Code (ABGB) is three years. The amount and duration of the warranty retention follow from the contract or the agreed ÖNORM; there is no statutory obligation to grant one.

The warranty retention can also be replaced by a bank guarantee. Only release the withheld amount once the warranty period has expired or an equivalent security is in place.

03

For defects or incomplete work, your right to withhold payment applies.

Independently of an agreed retention, you may withhold payment of the remuneration as long as the works are defective or not completed. This right to withhold payment under section 1052 ABGB serves as leverage to enforce the repair. However, the withheld amount must be in reasonable proportion to the defect.

Do not withhold the entire remuneration on a flat basis if there is only a minor defect. An excessive retention can put you in default yourself.

Distinguishing performance retention and warranty retention

The performance retention is withheld from the ongoing instalments during execution. It secures the customer against defects and against non-completion in the construction phase. On handover of the works, the performance retention is settled and in principle released or converted into a warranty retention.

The warranty retention applies after handover. It is withheld from the final invoice and secures the warranty claims for the duration of the warranty period. For construction works, the warranty period under section 933 ABGB is three years. This keeps leverage in the customer’s hands should defects appear after handover.

Both retentions are purely contractual securities. There is no statutory obligation to grant a retention. Whether and at what level a retention exists follows solely from the contract or from an agreed ÖNORM, such as ÖNORM B 2110.

Replacement by a bank guarantee

A withheld cash amount ties up the contractor’s liquidity. For that reason, practice often provides that the contractor can replace the retention with a bank guarantee. Instead of a withholding, the customer then receives a guarantee from the bank that is callable in the security event.

For the customer, such a guarantee is only equivalent if it covers the entire security purpose. Pay attention to the guaranteed amount, the term and to the guarantee being callable on first demand or at least without complication. A guarantee that ends before the warranty period expires does not protect you sufficiently.

Have an offered guarantee checked before you release the withheld cash amount. A defective guarantee can be worthless in an emergency, while you have already paid out the remuneration.

Compare securities

Performance retention, warranty retention and right to withhold

Three instruments for securing your position, with different timing and a different basis.

Securities in the construction contract by timing and basis
Instrument When it applies Basis
Performance retention During execution Withholding from ongoing instalments Contract or ÖNORM
Warranty retention After handover Withholding from the final invoice for the warranty period Contract or ÖNORM
Right to withhold For defects or incomplete work Proportionate withholding until repair Statute (section 1052 ABGB)

Retentions need an agreement, the right to withhold applies by operation of law. The overview does not replace a review of the individual case.

Relationship to the right to withhold payment

Independently of an agreed retention, you may withhold payment of the remuneration as long as the works are defective or not completed. This right to withhold payment follows from section 1052 ABGB and serves as leverage to enforce the repair. Under section 1170 ABGB, the remuneration generally only falls due upon completion of the works.

The right to withhold payment is, however, no carte blanche. The withheld amount must be in reasonable proportion to the defect. Anyone who withholds the entire remuneration for a minor defect risks falling into default themselves and becoming liable for damages.

How to handle your remuneration correctly is explained in the article on the remuneration claim and refusal of payment. What role the ÖNORM plays is explained in the article on ÖNORM B 2110. An overview is offered by our focus page on construction contract and remuneration.

Practical tip: Agree the performance and warranty retention clearly in the construction contract as to amount, duration and settlement. Only release a withholding once the security is no longer needed or an equivalent guarantee is in place. With a dispute about release, a review is worthwhile. Booking an initial consultation (72 euros) clarifies your position.

FAQ

Retention money in the construction contract.

Am I entitled to a retention by operation of law? +

No. Performance retention and warranty retention are purely contractual securities. They have to be agreed in the construction contract or follow from an agreed ÖNORM. Without an agreement, you retain the statutory right to withhold payment under section 1052 ABGB, which applies in case of defects or incomplete work.

Can the contractor replace the retention with a guarantee? +

Often yes. Many contracts provide that the contractor can replace the withheld amount with a bank guarantee. For you, this is only equivalent if the guarantee covers the entire security purpose, runs long enough and is callable without complication. Have an offered guarantee checked before release.

How long may I keep the warranty retention? +

The warranty retention secures the warranty period, which for construction works under section 933 ABGB is three years. The concrete duration of the withholding follows from your contract or the agreed ÖNORM. Only release the retention once the agreed period has expired or an equivalent security takes its place.

Further reading

Related topics around securities

Construction contract and remuneration

The focus page on the construction contract, the due date of the remuneration and the rights of both sides.

Remuneration claim and refusal of payment

When the remuneration falls due and when you may justifiably refuse payment.

Variations and additional costs in construction

When extra remuneration is owed and how variations differ from a cost estimate overrun.

ÖNORM B 2110 explained

What ÖNORM B 2110 regulates and how it structures retentions and securities.

Topics
warranty retentionperformance retentionconstruction contractsecurityÖNORM

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