Payment Schedules for Building Projects in London: Stage Payments Explained

Most building projects in London cost tens of thousands of pounds. Paying the entire amount upfront exposes you to serious financial risk if the contractor does not perform, goes insolvent, or disappears mid-project. Paying nothing until the end makes it difficult or impossible for the contractor to purchase materials and fund the workforce during the project.

A stage payment schedule solves both problems by tying payments to verified stages of completion. This means: - The contractor always has funds available to buy materials for the next stage - The client never pays significantly in advance for work that hasn't been done - Disputes are contained at the stage level rather than creating a total project standoff - There is always a retention of some funds until the project is genuinely complete

This is how professionally run building projects are managed throughout the London construction industry, from small bathroom renovations to six-figure extensions.

The deposit is the initial payment made before or at the start of the project, before significant work begins on site. This funds initial materials procurement and secures the contractor's programme allocation.

**Reasonable deposit ranges by project size:** - Projects under £5,000: 20-30% deposit is common and reasonable - Projects £5,000-£20,000: 15-25% deposit - Projects £20,000-£50,000: 10-20% deposit - Projects over £50,000: 5-15% deposit — larger projects should have more granular stage payments rather than a large upfront deposit

**Red flags regarding deposits:** - A contractor asking for 50% or more of the total cost upfront before any work starts is a warning sign — this is not standard practice - A contractor who says they 'need' a large deposit to buy all materials before starting — professional contractors buy materials in stages, not all at once - Requests for full cash payment upfront — professional contractors invoice through business accounts - Reluctance to provide a written schedule showing exactly what the deposit covers

**When a larger deposit might be reasonable:** - Bespoke or custom materials that must be ordered specifically for your project and cannot be returned (custom bifold doors, bespoke steelwork, specialist windows) - Projects where the contractor needs to mobilise significant equipment or scaffold before earning meaningful interim payments

In all cases, the deposit should be documented in the contract as covering specific items or activities.

The most common stage payment structure for a London building project ties payments to defined completion milestones. Below are typical stages for common project types:

**Extension or structural alteration project:** - Stage 1 — Deposit (10-15%): On contract signing, prior to start on site - Stage 2 — Groundworks complete (10-15%): Foundations dug, poured, and passed by Building Control - Stage 3 — Structural frame/shell complete (15-20%): Walls up, roof structure in place, building watertight - Stage 4 — First fix complete (15-20%): Electrical first fix, plumbing first fix, timber stud partitions - Stage 5 — Second fix/plastering (15-20%): Plastering complete, electrical and plumbing second fix - Stage 6 — Practical completion (10-15%): All works complete, snagging agreed and resolved - Stage 7 — Retention (5%): Released after the defects liability period (typically 6-12 months after practical completion)

**Loft conversion:** - Deposit (10-15%), structural frame (20%), roof windows/watertight (15%), first fix (15%), plastering (15%), second fix and staircase (15%), practical completion (5%), retention (5%)

**Refurbishment:** - Payments tied to room completions or trade sequence stages, typically 6-8 stage payments plus retention

**Smaller projects (bathroom, kitchen, single room):** - Deposit (25%), midway (50%), completion (25%) — or split into 3-4 even payments against defined milestones

Retention is the most important protection in a building project payment schedule. It is a percentage of the total contract value (typically 5%) held back by the client after practical completion and released only after the defects liability period has passed.

**What retention achieves:** - Keeps the contractor financially incentivised to return and fix any defects that appear after completion - Provides a fund that the client can use (in extremis) to pay another contractor to complete or fix works if the original contractor disappears or refuses to return - Is standard practice in the UK construction industry at all scales

**Defects liability period (DLP):** - Typically 6-12 months for domestic building projects - During this period, any defects that appear (not caused by the client's misuse) are the contractor's responsibility to remedy at their cost - At the end of the DLP, the retention is released in full if no defects are outstanding

**What counts as a defect vs fair wear and tear:** - A defect is a failure of the work to meet the contractual specification — a crack in new plasterwork, a leaking flat roof, a door that does not close properly because the frame is out of square - Fair wear and tear is normal deterioration — slight surface marks, minor settlement in new plasterwork that can be touched up

If a contractor does not accept retention in the contract, treat this as a warning sign. Retention is industry standard and its refusal suggests the contractor does not intend to return after completion.

Beyond a well-structured payment schedule, there are additional protections every London building client should put in place:

1. **Always use a written contract**: Even for smaller projects. A contract sets out exactly what is to be built, when, for what price, and on what payment terms. The JCT Minor Works Building Contract (available from the RIBA for around £50) is standard for domestic projects.

2. **Only pay on verified progress**: Before making each stage payment, verify that the stage is genuinely complete. Walk the site with your contractor and check against the agreed scope. If the stage is 90% complete, pay 90% of the stage amount — don't release the full stage payment for incomplete work.

3. **Keep a contemporaneous record**: Take dated photos of key stages. This creates an evidence trail if there is a later dispute about what was done when.

4. **Never pay in cash and demand receipts**: All payments should go to a verified business account and be documented with invoices. Cash payments create no legal trail.

5. **Check contractor accreditation**: FMB, TrustMark, or Checkatrade-verified contractors have agreed to minimum standards. This doesn't guarantee perfect work, but it gives you a complaints route if things go wrong.

6. **Understand what 'practical completion' means**: Practical completion is the point at which the works are substantially complete and the property is fit for use, even if minor snagging items remain. It is not the same as total and absolute completion. Agree with your contractor exactly what 'practical completion' means before signing the contract.