What is the right of retention and when may you invoke it?
The right of retention gives you, as a creditor, the authority to suspend the delivery of an item to your customer until that customer has paid their outstanding invoice. Simply put: as long as your customer does not pay, you do not return their goods.
It is an effective means of pressure. In most cases, the threat of non-delivery ensures that the customer pays upfront. However, the right of retention is subject to strict legal requirements. If you invoke it unjustifiably, you are liable for damages. Have your position assessed before taking action.
The right of retention is regulated in Article 3:290 of the Dutch Civil Code and applies to both movable property — such as a car,
machine, or records — and immovable property, such as a building under construction.
The three requirements for a valid right of retention
In order to validly invoke the right of retention, three conditions must be met.
First, a claim that is due and payable. The payment term on your invoice must have expired. If no
payment term has been agreed upon, the claim is immediately due and payable. If your claim
is disputed on its merits, you run a risk if you nevertheless invoke the right of retention.
Secondly, actual control over the item. You must actually have the item physically in your possession. The car is still in your garage, the house has not yet been handed over, and the records are still with you. As soon as you have
handed over the item, you can no longer invoke the right of retention — not even if it turns out afterwards that the invoice has not been
paid.
Thirdly, sufficient connection. There must be a close link between the matter and your claim.
A garage owner who has repaired a car has a connection. A garage owner who
has a car in storage but has an unpaid invoice for a repair previously performed on another
car — that is less clear and requires assessment.
Well-known examples in practice
In practice, the right of retention is most frequently invoked by contractors who fail to deliver a home as long as the invoice remains unpaid, garage owners who withhold a repaired car, accountants and bookkeepers who do not provide prepared annual accounts or tax returns, and stable owners who do not return a horse or vehicle.
Please note regarding accountants: you may retain documents produced by you, such as prepared annual accounts, but not the original documents entrusted to you, such as invoices, notarial deeds, or unedited business records.
What if the customer doesn't pay after all?
If the customer refuses to pay even after invoking the right of retention, you can ultimately
sell the item to satisfy your claim. However, this is not permitted without further ado: you require an enforcement order for this
— in practice, a court judgment. Subsequently, the item can be sold at a public auction
or, with the permission of the judge, privately.
The major advantage: you have priority over other creditors regarding the proceeds. The right of retention remains in effect even during your client's bankruptcy. The bankruptcy trustee will settle the invoice or distribute the assets to you with priority.
When may you not invoke the right of retention?
There are situations in which the right of retention does not apply or may not be invoked. The most important: if
the claim is time-barred; if you yourself are in default and have not performed the assignment, or have not performed it fully;
if the item is no longer in your possession due to fire or loss; or if the customer is unable to make payment
due to force majeure.
If you exercise the right of retention unlawfully, you are liable for damages. Especially in larger projects —
such as in the construction industry — those damages can amount to a considerable sum.
