The right of retention is a powerful means of enforcing payment of a debt. This is because a party can use it to suspend its obligation to surrender an item pursuant to an agreement (or to vacate it in the case of real estate). The debtor is then unable to take control of the relevant item, and this can have a considerable impact.
Conditions governing the right of retention
Since it is such a powerful resource, exercising the right of retention is subject to stringent conditions which are laid down by law (Book 3 Articles 290-291 of the Civil Code):
1. At the time of invoking the right of retention, the creditor must have actual lawful control of the item to be surrendered (or vacated in the case of real estate);
2. The debtor must owe a debt due and payable to the creditor;
3. There must be a connection between the creditor’s obligation to surrender the item or vacate the premises and the debt due and payable (e.g. if a house is being built, this house must be vacated by the contractor on payment of the contract price); and
4. The debtor must be authorised or have been authorised to enter into the agreement with the creditor.
Ruling by the Arnhem-Leeuwarden Court of Appeal
In a recent ruling given by the Arnhem-Leeuwarden Court of Appeal, the first condition was at issue: did the creditor have actual control of the item (houses, in this case) when he invoked the right of retention and installed locks on these houses to prevent access? This is often an issue in cases of right of retention. After all, it is very tempting to assume actual control by replacing locks and/or erecting a fence if there is a debt outstanding. However, that is not the way it works.
The item must be inaccessible to the creditor (or to a third party) before a contractor or sub-contractor has actual control of it. And the Arnhem-Leeuwarden Court of Appeal ruled in February 2013 that three conditions must be fulfilled in this respect:
a. the control that the (ic) contractor has over the item in retention must derive from work being carried out at that moment pursuant to an agreement (i.e. you cannot occupy job X for a debt in job Y for the same client);
b. this control must relate to access (by the debtor or entitled party) to the item retained;
c. this control must exclusively accrue to the retentor (the creditor), i.e. the place may not be accessible to all and sundry.
Since the 2013 court ruling came in for a lot of criticism in practice and in the legal literature, the Court is reluctant to give a definitive opinion in the 2015 case. For this reason, the Court intends to submit a request for a preliminary ruling to the Supreme Court on what exactly the requirements are or ought to be for establishing a contractor or sub-contractor’s actual possession. In view of the tremendous importance of the Supreme Court’s response to this request in the building sector, we are all eagerly awaiting this response from the Supreme Court. So we hope that the Court will actually carry out its intention to submit the request.
But of course it will still be possible to exercise the right of retention as usual in the meantime. If you have any questions on this issue, or if you need to know how to deal with it, please do not hesitate to contact Mark Moolhuizen or Bart Pijpers for further information.