Right of retention

Right of retention

Often, the contractor and the client agree that (part of) the contract sum will be paid at or after completion of the work. If the contract sum is not paid (in full), the contractor may, in some cases, invoke the right of retention. The right of retention grants the contractor the authority to suspend the surrender of the item until the client fully satisfies the claim. Consequently, the contractor holds the item until payment is made.

The moment the contractor invokes their right of retention, this has significant consequences for the client. For this reason, a number of conditions must be met before the contractor can invoke the right of retention. First, there must be an enforceable claim. This requirement is also met if the client is not yet in default. Second, the object in question must be one that the contractor has acquired pursuant to the agreement between the parties. Finally, the contractor must exercise actual control over the object. Whether the contractor exercises actual control over the object must be assessed based on the facts and circumstances. If a contractor wishes to exercise the right of retention, it is advisable to seek legal advice to explore the available options. Additionally, our team of legal specialists offers advice to clients against whom the right of retention is invoked.

Questions regarding the right of retention? Contact us.

The legal basis: Article 3:290 of the Dutch Civil Code and subsequent articles

The right of retention is regulated in Article 3:290 of the Dutch Civil Code. It is described therein as the power granted to a creditor in cases designated by law to suspend the fulfillment of an obligation to surrender an object to his debtor until his claim is satisfied. In the construction industry, this is typically the contractor who retains possession of the construction site or the structure until the contract sum has been paid.

The requirement of coherence is crucial: there must be sufficient connection between the contractor's enforceable claim and his obligation to return the object (Article 3:290 of the Dutch Civil Code). In a contract for work, this connection almost always exists, because the claim (the contract price) and the object (the work) arise from the same agreement. Regarding the position vis-à-vis third parties, Article 3:291 of the Dutch Civil Code (enforceability against third parties with a younger and sometimes older right) and Article 3:292 of the Dutch Civil Code (priority for recourse against the object) are of particular importance. The core of this subject falls within our area of ​​law regarding Construction Law and is closely related to the agreements in contracts for work.

Exercising actual power on the construction site

A right of retention exists only when the contractor has and retains actual control over the work. In the case of immovable property, actual control is assumed if the contractor holds the property in such a way that it is effectively inaccessible or unusable to the client. In practice, this is done by fencing off the construction site, for example with a lockable construction fence, and by stating on clearly visible signs that the contractor is exercising his right of retention.

Whether actual possession is sufficient depends heavily on the facts and circumstances of the case. If the contractor loses control over the property, for example by handing over the keys or the client gaining access, the right of retention lapses. Exercising a valid right of retention is therefore truly a matter of custom work; incorrect execution can render the right worthless.

Right of retention against third parties, mortgagee and in bankruptcy

The right of retention is effective not only against the client but, subject to conditions, also against third parties. Pursuant to Article 3:291 paragraph 1 of the Dutch Civil Code, the contractor may invoke his right of retention against third parties who have acquired a right to the object after the claim arose and possession of that object (third parties with a younger right). Against a third party with an older right, such as a mortgagee or a previous owner, the right of retention applies only if the claim arises from an agreement that the debtor was authorized to enter into with respect to the object, or if the contractor had no reason to doubt that authorization (Article 3:291 paragraph 2 of the Dutch Civil Code).

In principle, the right of retention retains its value even in bankruptcy. The trustee can claim the property by satisfying the claim or by selling it while retaining the right of priority; the contractor then has priority in the distribution of the proceeds (Article 3:292 of the Dutch Civil Code). For subcontractors, it is important that they too can exercise a right of retention on the work they actually hold, even without a direct contractual link with the principal client. These considerations touch upon insolvency law and require careful legal assessment.

Are you the client? Here is how to get rid of the right of retention

If a right of retention is invoked against you as the client, your construction site is literally locked down. You do not have to simply accept this. First of all, it must be assessed whether all the conditions of Article 3:290 of the Dutch Civil Code have been met: is there an enforceable claim, is there sufficient connection, and does the contractor actually have factual control? If the invocation is unsatisfactory, the right of retention is not legally valid, and you can enforce the surrender of the work.

If the right of retention is valid, you can lift it by satisfying the claim or by providing substitute security, such as a bank guarantee or a deposit into the third-party account of a notary or lawyer. In urgent cases, surrender or lifting can be claimed in summary proceedings. We assist both contractors and clients and ensure, where necessary, that the collection of the underlying claim and the lifting of the right of retention are handled simultaneously.

The risks of an unjustified reliance on retention

The right of retention is a powerful tool for exerting pressure, but it cuts both ways. If a contractor invokes the right of retention without all conditions being met, he acts unlawfully and is liable for all damages suffered by the client as a result. Examples include damages for delay, additional financing costs, contractual penalties, or lost rent. Even an initially valid right of retention can become unlawful if the contractor exercises it for too long or disproportionately.

An ill-considered reliance on retention can therefore actually work against the contractor. For this reason, it is wise to have a legal assessment carried out beforehand to determine whether the right of retention holds up and how to structure it so that it is both strong and lawful.

Construction law lawyers and legal experts for corporations and the baker on the corner

Issues concerning the right of retention arise for large construction companies and property developers, but just as much for the self-employed contractor, the handyman business owner, or the baker on the corner having his premises renovated. At MKB Juristen, lawyers and (in-house) legal counsel work together in mixed teams. As a result, we combine the litigation authority of a lawyer with the practical, cost-conscious approach of an in-house counsel.

Whether you are an international group needing to assess a right of retention against a mortgagee, or a small business owner whose construction site is locked down: we assess your position, choose the right strategy, and act quickly when necessary. This subject falls under our expertise in Construction Law.

Frequently asked questions about the right of retention

What is the right of retention? It is the statutory power (Article 3:290 of the Dutch Civil Code) of a creditor, such as a contractor, to suspend the delivery of an item until his claim has been paid in full.

What conditions must be met? There must be an enforceable claim, sufficient connection between the claim and the obligation to deliver, and actual control of the contractor over the work.

Can a subcontractor exercise a right of retention? Yes. Even a subcontractor who actually has possession of the work can, under certain circumstances, invoke a right of retention, even without a direct contract with the principal client.

Does the right of retention also apply in bankruptcy? In principle, yes. The trustee must satisfy the claim or sell the asset while retaining your right of priority; you retain priority over the proceeds (Article 3:292 of the Dutch Civil Code).

I am the client; how do I release the right of retention? By paying the claim or providing substitute security (such as a bank guarantee). If the claim is unfounded, you can enforce surrender, if necessary through summary proceedings.