Right of retention
The right of retention in The Netherlands
If the client fails to pay, the contractor holds a strong card to secure his rights (to payment): the right of retention. The right of retention means that the ‘item’ of the client is not delivered by the contractor until the contractor’s claim is paid (article 3:290 of the Civil Code of The Netherlands). The right of retention cannot only be applied to movable items (sofas, cars, bicycles, radios etc.). A contractor can also exercise that right for the immovable property he is building. However, if a contractor wants to exercise his right of retention, he has to be careful. The criterion is that the contractor has to have the actual control over the work. That is easier done for movable items than for immovable property. The debtor (client) should (in case of immovable property) not have access to the work, because the contractor then does not have actual control. This can be implemented by, for example, cordoning off the work with fences. Depending on the circumstances of the case, it is even possible to exercise the right of retention for part of a building.
Stating right of retention
The contractor is obliged to clearly state his right of retention to invoke that right against a third party (with a later right). In practice, signs stating that the contractor concerned is exercising his right of retention are often used. To invoke the right of retention against third parties with an older right, the requirement is that the contractor’s claim arises from an agreement that the client was entitled to conclude in this case, or that he had no reason to doubt the entitlement of the debtor. The party that exercises his right of retention correctly can recover his claim with priority above all parties against whom a right of retention can be invoked.
Bankruptcy and right of retention
The right of retention also gives the party invoking this right a stronger position in case of bankruptcy of the party against whom the right of retention is exercised, often the debtor of the party invoking the right of retention. The right of retention is not cancelled by bankruptcy of the debtor who owns the property on which the right of retention is exercised. A trustee who is confronted with a right of retention, in principle has two options. He can claim the property and sell this, with the provision that the party invoking the right of retention keeps his priority, which shall be expressed in the division of the proceeds of the sale. The other option for the trustee is to pay the claim of the party exercising the right of retention, thus annulling the right of retention, whereby the property becomes part of the bankrupt estate, which can then be sold by the trustee. If the trustee fails to act, in spite of being granted a reasonable term to act, the party exercising the right of retention is free to sell the property he holds, pursuant to the legal stipulations for holders of pledges and mortgages. In the construction industry, it is likely that the right of retention is exercised for a registered property, in which case the party exercising the right of retention has to notify the trustee, within fourteen days after the expired (reasonable) term, that he is proceeding to execution.
Construction lawyer in The Netherlands
Law firm AMS is based in Amsterdam, The Netherlands. Our Dutch lawyers have gained a broad experience in construction law, both advising and litigating for (international) companies and individuals. The attorneys are highly involved with their client’s interests and offer a sharp and transparent fee structure. Should you require more information on construction law in The Netherlands, or should you have any question with respect to litigation in The Netherlands, please feel free to contact one of the lawyers at our Dutch law firm in Amsterdam.