Right of Retention Under UAE Civil Transactions Law: When Can a Creditor Legally Withhold Another Person’s Property?

New law defines when creditors can retain property over unpaid debts and obligations that come with exercising that right.

Commercial relationships inevitably carry the risk that one party fulfils its obligations while the other fails to pay. The right of retention is one of the legal remedies available in such circumstances. It allows a person who lawfully possesses another’s property to withhold its return until certain outstanding obligations have been met. Depending on the circumstances, the right may also allow a party to withhold performance of an obligation until the other party fulfils a corresponding obligation.

The remedy is particularly relevant in the UAE, where workshops, contractors, warehouses, carriers and service providers routinely take possession of customers’ property while carrying out their work. Although retention can provide an effective means of securing payment without immediately resorting to litigation, it is not an unrestricted right. The law imposes conditions on its exercise and places responsibilities on the person retaining the property. This article examines the statutory framework, the arguments surrounding the remedy and the legal consequences for both parties.

What the Law Says

The UAE Civil Transactions Law was replaced by Federal Decree-Law No. 25 of 2025, which came into force on 1 June 2026, repealing Federal Law No. 5 of 1985. The new legislation addresses the right of retention in Articles 350 to 353, under a dedicated section dealing with the subject.

Article 350 establishes three circumstances in which retention may be exercised. First, a person obliged to perform an act may withhold performance where the creditor has not fulfilled a corresponding obligation arising from, and connected with or reciprocal to, the debtor’s obligation. The right may also be exercised where the creditor has failed to provide sufficient security for the performance of that obligation.

Second, a person who has incurred necessary or beneficial expenses on another person’s property while it is in their possession may refuse to return it until the amount legally due has been recovered. This right is subject to any contrary provision of law or agreement. Third, parties to financial commutative contracts may generally retain the subject matter of their agreement while it remains in their possession until the agreed consideration is received.

The remaining provisions explain the responsibilities and protections attached to retention. Article 351 requires the holder to preserve the property and account for any yield derived from it. It also allows a court-authorised sale where the property is at risk of destruction or damage. Where an item is perishable or likely to lose value and obtaining judicial permission in time is impracticable, the holder may sell it at the price of its equivalent, with the retention right transferring to the proceeds.

Article 352 gives the holder priority over ordinary creditors in recovering the amount due from the retained property. Article 353 provides that retention ends when the holder receives payment, the property perishes or it leaves the holder’s possession, subject to the statutory exception allowing recovery where possession was lost without the holder’s knowledge or despite opposition.

The Case in Favour of the Right

Supporters of the remedy point to fairness and commercial efficiency. A repairer who has improved a vehicle, or a contractor who has carried out necessary work to preserve a building, has provided a measurable benefit to the owner. Allowing the owner to recover the property without settling the corresponding expenses could leave the service provider carrying the financial burden of work already completed.

Retention also provides practical leverage in payment disputes. The prospect of having an asset withheld can encourage a debtor to settle an outstanding invoice more quickly than the prospect of lengthy court proceedings. This can be particularly important for small businesses and independent service providers with limited cash flow, which may struggle to absorb unpaid expenses while continuing to meet their own financial commitments.

The statutory priority given to the retaining party under Article 352 offers an additional safeguard. It provides a degree of protection where other ordinary creditors are also pursuing payment from the debtor. In this respect, retention serves both as a means of encouraging payment and as a legal mechanism for protecting legitimate financial interests without requiring the holder to initiate a separate recovery action before exercising the right.

The Case Against the Right

The main criticism is that retention places considerable power in the hands of a party with a direct financial interest in the dispute. A creditor may be tempted to exaggerate an invoice, include unrelated expenses or retain property whose value is substantially higher than the amount claimed. For the owner, the consequences can extend beyond the temporary loss of possession, particularly where the asset is essential to business operations.

There is also a wider concern about the interests of other creditors. The priority granted to a retaining party can affect the ability of ordinary creditors to recover their debts, while the retention arrangement may not be apparent from conventional asset or security records. This creates questions about transparency and the relative position of creditors dealing with the same debtor.

Some critics favour remedies subject to closer judicial supervision, such as interim attachment or the deposit of disputed amounts with the court. Such measures may offer a more balanced approach where the underlying claim is contested. The UAE legislation, however, seeks to address the risk of misuse through its general provisions on abuse of rights. Under Article 106, exercising a legal right may attract liability where it is intended to cause harm, pursues an unlawful interest, creates disproportionate harm or exceeds established custom and practice.

Consequences for the Holder

The holder gains a valuable form of security and bargaining power, but the right comes with corresponding obligations. Article 351 requires the person retaining the property to preserve it and account for any income or yield generated by it. Retention does not transfer ownership or give the holder unrestricted permission to use the asset for personal or commercial purposes.

Negligence in safeguarding the property may expose the holder to a claim for compensation. Similarly, the right cannot be used to secure unrelated debts where the statutory conditions are not satisfied. If the holder voluntarily gives up possession, the right will ordinarily come to an end, although Article 353 provides a limited recovery mechanism where the property has left their possession without their knowledge or despite their objection.

Unjustified retention can also create legal exposure. Where the right is exercised unlawfully or in a manner amounting to an abuse of rights, the holder may face a compensation claim and proceedings seeking the property’s return. Anyone intending to rely on the remedy should maintain proper invoices, supporting records and written communication establishing the basis and amount of the claim. The property should also be kept in an appropriate condition throughout the period of retention.

Consequences for the Opposite Party

For the property owner, the immediate consequence is the loss of use and control of the asset, potentially disrupting business activities and causing financial losses. Ownership, however, remains with the original owner. Retention is a temporary legal remedy rather than a transfer of title, and the holder cannot treat the property as their own.

Payment of the amount properly due will bring the retention right to an end. Where the owner disputes the claim, they may approach the court to challenge the basis or amount of the alleged debt and seek an order for the property’s return. A claim for compensation may also be available where wrongful retention has caused demonstrable loss.

The new law also provides a mechanism for dealing with property that is at risk of deterioration or losing its value. Depending on the circumstances, the holder may obtain judicial permission to sell the retained asset, or may sell it at the equivalent market price where obtaining permission in time is impracticable. In either situation, the retention right transfers to the sale proceeds, preserving the financial claim without requiring the asset itself to remain withheld. Owners can reduce the likelihood of such disputes by establishing clear contractual terms, maintaining proper payment arrangements and addressing disputed invoices promptly. The law expressly recognises that an agreement may exclude or modify the retention right in the circumstances covered by Article 350(2).

Conclusion

The right of retention reflects two important principles of UAE civil law: a person who provides value or incurs legitimate expenses in relation to another’s property should have a means of recovering what is due, but the exercise of that right must not become an instrument of unfairness or abuse.

Federal Decree-Law No. 25 of 2025 gives the remedy a clearer statutory structure by setting out the circumstances in which performance or the return of property may be withheld, the duties of the retaining party, the priority of the claim and the events that bring the right to an end. Its provisions also recognise the need to protect property from deterioration and provide a mechanism for transferring the right to sale proceeds where necessary.

With the new law in force, Kaden Boriss can assist businesses in reviewing their contracts, invoicing procedures and arrangements for handling customers’ property. A properly documented claim, lawful possession and responsible preservation of the asset are central to exercising the right of retention. Used within its statutory limits, retention can provide a practical safeguard for creditors. Applied indiscriminately or to exert pressure beyond what the law permits, however, it can expose the holder to liability.