Almost every entrepreneur has to deal with it: unpaid invoices. Especially in these times of economic crisis. In some cases the entrepreneur can invoke a right of retention. The entrepreneur exercising a right of retention is called the ‘retentor’. This article describes what a right of retention is and how it works.
What is the right of retention?
The right of retention is regulated in Article 3:290 et seq. of the Dutch Civil Code. A creditor (the entrepreneur) can delay the handing over of an item to the debtor (the customer) until the debtor has paid the invoice. The right of retention is often used in the construction industry. The building contractor will not hand over the building until he has been paid. Another well-known example is a garage owner who has repaired a car. As long as the invoice for this repair has not been paid, the garage owner does not have to return the car. In both cases the exercise of the right of retention prevents that the party performing the work has a disadvantage. After all, if the car has been repaired and returned, the garage owner has fulfilled his obligations. But the customer still has to fulfil his payment obligation, so in fact the garage owner is 1-0 behind. A right of retention enables an equal exchange.
When can the right of retention be exercised?
An item may only be retained if there is a due and payable debt. Due and payable means that the payment term (on the invoice) has expired. If no payment term was agreed, the debt is immediately payable. The right of retention can only be exercised if the retentor actually has control over the item. A garage owner has actual control if the car is still in his garage. This actual control must be apparent to third parties. The right of retention ends the moment the customer regains control over the car. However, if the customer takes back the car unlawfully, for example by using a spare key to take the car from the premises of the garage owner without him knowing, then the garage owner can claim back the car. The right of retention will be restored.
How does the retentor get his money?
In many cases the customer will proceed to payment because he wants his car back. If the customer refuses to pay the invoice, the retentor may sell the item and pay his invoice from the selling proceeds. However, there are certain rules that apply to this sale. First the retentor must have a so-called executory title, for example obtained in court proceedings. Then a bailiff must seize the item. After that the item can be sold by public auction. With permission of the court, the item can also be sold privately. The right of retention will continue to exist if the customer goes bankrupt. In that case the receiver will either pay the invoice or claim the item and sell it. The retentor will then rank first for payment from the selling proceeds.
The right of retention can be used as a means to pressure customers to pay invoices. Furthermore, the right of retention offers security, even in the event of bankruptcy. However, the right of retention needs to be applied correctly. This article describes the broad outlines, but the exercise of a right of retention always requires a customised service. Of course we would be happy to advise you further on this subject.