Commercial transactions do not always proceed as agreed. A service provider may complete work on a customer's property without receiving payment, a contractor may incur expenses to preserve an asset, or one party to a contract may fulfil its obligations while the other fails to meet its financial commitments. In such situations, the right of retention provides a legal means of protecting the interests of the party awaiting payment or performance.
Under this principle, a person lawfully holding another party's property may refuse to return it until certain outstanding obligations have been fulfilled. In some circumstances, the remedy also permits a party to withhold performance of its own contractual obligations until the other party meets a corresponding commitment. It is intended to prevent one party from obtaining the benefit of a transaction without fulfilling its obligations in return.
The principle has considerable practical relevance in the UAE, where workshops, construction contractors, warehouses, transport operators and other service providers regularly take possession of property belonging to customers or business partners. Retaining an asset can provide an immediate measure of financial protection and encourage settlement without the need for lengthy court proceedings. However, the remedy is not an unrestricted entitlement. Its exercise is subject to statutory conditions, and the person retaining the property must comply with specific legal responsibilities.
The introduction of Federal Decree-Law No. 25 of 2025 on the Civil Transactions Law provides a dedicated statutory framework for the right of retention, clarifying when it may be exercised, the protections available to the holder and the circumstances in which the right comes to an end.
The Statutory Framework Governing Retention
The new UAE Civil Transactions Law came into force on 1 June 2026, replacing Federal Law No. 5 of 1985. Articles 350 to 353 address the right of retention and establish the legal conditions governing its exercise.
Article 350 identifies three principal circumstances in which the remedy may be available.
The first concerns reciprocal contractual obligations. A person required to perform an obligation may withhold performance where the creditor has failed to fulfil a corresponding obligation that is connected with or reciprocal to the obligation owed by the debtor. The remedy may also be exercised where the creditor has failed to provide sufficient security for the performance of that obligation. This provision recognises that a party should not necessarily be compelled to perform its side of an arrangement while the other party fails to meet an associated commitment.
The second circumstance concerns expenses incurred in relation to another person's property. Where a person has lawfully incurred necessary or beneficial expenses on property in their possession, they may retain it until the amount legally due has been recovered. This entitlement operates subject to any contrary provision of law or agreement between the parties.
The third applies to financial commutative contracts, under which each party provides consideration in exchange for what it receives. In such arrangements, a party may generally retain the subject matter of the contract while it remains in their possession until the agreed consideration has been received.
The remaining provisions establish the obligations and protections associated with the remedy. Article 351 requires the person exercising retention to preserve the property and account for any yield derived from it. It also provides for the sale of property with judicial authorisation where it is at risk of destruction or damage. Where the property is perishable or likely to lose value and there is insufficient time to obtain judicial permission, the holder may sell it at the price of its equivalent, with the retention right transferring to the sale proceeds.
Article 352 grants the retaining party priority over ordinary creditors in recovering the amount due from the retained property. Article 353 specifies the circumstances in which retention ends, including payment of the outstanding amount, destruction of the property or its departure from the holder's possession. The provision also recognises a limited exception where possession is lost without the holder's knowledge or despite their opposition.
Why the Right of Retention Matters to Creditors
The principal argument supporting retention is that it prevents an unfair outcome in commercial dealings. A repair workshop that has completed substantial work on a vehicle, for example, should not necessarily be required to return it before receiving payment for the services provided. Similarly, a contractor who has incurred necessary expenses to protect or preserve a customer's property has a legitimate interest in recovering those costs.
Without an effective remedy, service providers and contractors could be exposed to situations in which customers obtain the benefit of completed work while delaying or avoiding payment. The resulting financial burden could be particularly difficult for small businesses and independent operators, which may have limited working capital and continuing obligations to employees, suppliers and other creditors.
Retention also offers a practical alternative to immediately initiating legal proceedings. The possibility of having an asset withheld can encourage a debtor to resolve an outstanding payment dispute more quickly. For businesses dealing with recurring transactions, this can provide a measure of commercial discipline and reduce the financial risks associated with delayed payments.
The priority recognised under Article 352 offers another layer of protection. By giving the retaining party precedence over ordinary creditors in recovering the amount due from the retained property, the provision strengthens the position of a creditor who has legitimately exercised the right. It recognises that the party holding the asset may have a direct and legally protected financial interest in it.
Nevertheless, the remedy is intended to secure legitimate obligations rather than provide a general mechanism for recovering every outstanding debt. The connection between the property, the obligation and the legal basis for retention remains important.
The Risks of Excessive or Wrongful Retention
Despite its commercial advantages, the right of retention can create difficulties for property owners and other parties. One of the principal concerns is that the person holding the asset has a direct financial interest in the underlying dispute. This may create an incentive to inflate invoices, include disputed expenses or retain property beyond what is reasonably justified by the amount claimed.
The financial consequences for the owner can be considerable. A vehicle withheld by a repair workshop may be essential to a business's daily operations, while equipment retained by a service provider could interrupt production or delay contractual commitments. Even where the underlying payment dispute involves a relatively modest amount, the loss arising from the inability to use the property could be substantially greater.
The priority given to a retaining creditor may also affect the interests of other creditors seeking to recover money from the same debtor. Unlike conventional security arrangements, retention may arise from the circumstances in which property comes into a person's possession rather than from a separately registered security interest. This can raise questions about the visibility of the arrangement and the relative position of competing creditors.
Judicial supervision and alternative protective measures may be particularly important where the underlying debt is disputed or the consequences of withholding the property are disproportionate. The parties may seek appropriate court intervention to resolve the dispute and protect their respective interests.
The general prohibition against the abuse of rights provides an additional safeguard. Article 106 of the Civil Transactions Law addresses circumstances in which exercising a legal right may become unlawful, including where the principal intention is to cause harm, the interest pursued is unlawful, the harm caused is disproportionate to the benefit obtained, or the exercise of the right exceeds established custom and practice.
Accordingly, the existence of a financial claim does not automatically justify every form of retention. The circumstances, purpose and manner in which the remedy is exercised remain relevant to determining whether the holder has acted within the law.
Legal Responsibilities of the Retaining Party
The right to withhold property comes with corresponding duties. Article 351 places responsibility on the holder to preserve the retained asset and account for any yield generated by it. This is an important distinction: retention does not transfer ownership, nor does it give the holder unrestricted authority to use, dispose of or commercially exploit the property.
A person retaining a vehicle, for instance, must take reasonable care to protect it from damage while it remains in their possession. The same principle applies to machinery, equipment, goods and other assets. Failure to safeguard the property or negligence resulting in deterioration may expose the holder to a claim for compensation.
The holder must also ensure that the claim supporting retention falls within the statutory provisions. Property cannot be withheld merely because the owner has an unrelated outstanding debt. The legal basis for retention, the amount claimed and its connection with the relevant obligation must be properly established.
Possession is another important consideration. Under Article 353, the right ordinarily comes to an end when the property leaves the holder's possession. The law, however, provides a limited exception where possession has been lost without the holder's knowledge or despite their opposition.
Businesses intending to rely on retention should therefore maintain clear documentary evidence, including contracts, invoices, work orders, payment records and written communications. These records can help establish the nature of the obligation, the expenses incurred and the amount being claimed. Proper arrangements for storing and preserving the property are equally important throughout the retention period.
What Property Owners Can Do When Faced With Retention
For the owner, the immediate consequence of retention is the loss of possession and use of the asset. Depending on its commercial importance, this may result in operational disruption, additional expenses and financial losses. However, ownership remains with the original owner. The remedy does not give the retaining party title to the property or an unrestricted right to dispose of it.
The first step for an owner facing retention should be to establish the legal and contractual basis of the claim. The amount demanded should be examined against the relevant agreement, invoices and supporting records. Where the claim is valid, settling the amount legally due will ordinarily bring the retention right to an end.
If the owner disputes the debt or believes the remedy has been exercised unlawfully, the matter may be brought before the competent court. The owner can challenge the basis or amount of the claim and seek the return of the property. Where wrongful retention has caused demonstrable financial loss, a claim for compensation may also be available.
The statutory provisions dealing with property at risk of deterioration or loss of value are particularly relevant to owners. Article 351 allows the holder to obtain judicial authorisation to sell such property. Where it is perishable or likely to lose value and obtaining permission in time is impracticable, the law permits a sale at the price of its equivalent. In either situation, the retention right transfers to the proceeds rather than disappearing altogether.
This mechanism seeks to balance the interests of both parties. It prevents the value of an asset from being unnecessarily lost while preserving the creditor's claim against the proceeds. It also avoids requiring property to remain in storage or under the control of the retaining party when its condition or market value is deteriorating.
Property owners and businesses can reduce the likelihood of disputes by incorporating clear payment provisions into their contracts, specifying how expenses will be approved and documenting the circumstances in which property may be retained. Article 350(2) also recognises that the statutory right relating to necessary or beneficial expenses may be subject to a contrary contractual arrangement.
Reviewing Contracts and Commercial Practices
The new Civil Transactions Law makes it important for businesses to examine how their existing contracts address possession, payment obligations and the handling of customer property.
Service providers should ensure that their invoices accurately reflect the work performed and expenses incurred. Where property is held pending payment, the reasons for doing so should be communicated clearly to the owner. Businesses should also establish internal procedures for safeguarding retained assets and responding to disputes over the amount claimed.
For customers and property owners, contractual clarity can help prevent disagreements over whether a service provider is entitled to retain an asset and what amounts may legitimately be recovered. Payment schedules, procedures for approving additional work and mechanisms for resolving disputed invoices can reduce the likelihood of a dispute escalating into a question of unlawful retention.
Companies dealing with valuable equipment, vehicles, machinery or goods should pay particular attention to the consequences of losing possession, including the potential impact on business operations and contractual commitments. A retention dispute may involve more than an unpaid invoice; it can affect the performance of other commercial obligations.
A Balance Between Creditor Protection and Property Rights
The right of retention under the UAE Civil Transactions Law seeks to balance two competing interests. A person who has lawfully incurred expenses or provided services in relation to another party's property should have an effective means of protecting their legitimate financial interests. At the same time, the property owner should not be exposed to arbitrary withholding, disproportionate demands or misuse of the remedy.
Federal Decree-Law No. 25 of 2025 provides a more clearly defined statutory framework by identifying the circumstances in which retention may be exercised, establishing the responsibilities of the holder, recognising priority over ordinary creditors and specifying when the right comes to an end.
For businesses operating in the UAE, the practical implications extend to contractual drafting, payment management, asset handling and dispute resolution. A valid claim, lawful possession and proper preservation of the property are central to exercising the remedy.
When applied within its statutory boundaries, retention can be an effective means of protecting creditors and encouraging the fulfilment of commercial obligations. When used as leverage beyond what the law permits, however, it can expose the retaining party to legal proceedings and liability for compensation.
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