What is Right of Retention?

The right of retention works as follows: a creditor who holds property belonging to you in connection with an outstanding claim may retain that property until you pay. The key condition is that there must be a "sufficient connection" between the claim and the property being withheld.

The classic example is a garage refusing to return your vehicle until the repair bill is paid. But the right of retention also applies in business contexts. A contractor who has completed a renovation can effectively occupy the premises by not removing their materials and equipment. A storage company can withhold your inventory for unpaid invoices. An IT provider managing your hardware can retain that hardware.

The right of retention is remarkably strong. It even takes precedence over the rights of mortgage holders and pledgees. This makes it an effective pressure tool, but also a potentially disruptive one when used against you.

There are limits. The right of retention cannot be exercised if the claim is not yet due, if the creditor obtained possession of the property unlawfully, or if withholding would be unacceptable in the circumstances according to standards of reasonableness and fairness. Additionally, the creditor must handle the retained property with care — they are liable for damage caused by negligent storage.

For SMBs, it is important to realise that the right of retention can work both for and against you. As a principal, you want to prevent a supplier from paralysing your operations by withholding goods.

The right of retention can directly impact your business operations. A supplier withholding your inventory, equipment, or materials can halt your production or prevent you from serving customers. It does not matter whether the claim is legitimate — the right may be exercised as long as there is an enforceable debt.

As an SMB owner, you can mitigate this risk by setting clear payment terms, paying invoices on time or disputing them in writing, and contractually excluding or limiting the right of retention for business-critical assets.