In the UAE, retention in construction contracts is a contract term, not a statutory rule. The owner holds back part of each payment as security for defects, and the contract decides the percentage, the release dates, and the form of security.
The contractor chapter of the Civil Transactions Law does not mention retention money, a cap, or a release date.
The law matters in other ways. It sets the default payment rules that a retention clause overrides, and it sets limits that no retention clause can remove.
What the Law Says, and What It Leaves to the Contract
The law sets default rules and limits, not a retention regime.
| Point | What The Civil Transactions Law Provides | Article |
|---|---|---|
| When the owner pays | On delivery, unless the parties agree otherwise. For work in parts, or priced by unit, it pays for each completed part after inspection and acceptance, unless agreed otherwise. A retention clause works because the law lets the parties agree otherwise. | 826, 827 |
| Defective or non-compliant work during the works | One statutory route: the owner can send a notice, set a reasonable period to correct, and then, after establishing the condition of the work, end the contract or hand the work to another contractor at the first contractor’s cost. Other remedies can also apply, such as termination through the court after notice. | 818, 234 |
| The ten-year guarantee | The engineer and contractor are jointly liable for collapse and for defects that threaten the building’s strength and safety. A clause that exempts or limits the guarantee is void. Releasing retention does not end it. | 821 to 823 |
| The time to sue on the guarantee | A claim is not heard after 3 years from the collapse or the discovery of the defect. | 824 |
| Agreed damages | The parties can fix compensation in advance. The court can reduce it if excessive or if part was performed, and any contrary agreement is void. | 340 |
| The right to hold the item | A contractor whose work changed the owner’s item can keep it until it is paid. This is a different right from retention money. | 820 |
Terms To Settle For Retention In Construction Contracts
Most retention disputes come from a clause that is silent or vague. Settle these points in writing, because the law will not fill the gap with a cap or a release date.
| Point | Why It Matters |
|---|---|
| The percentage, and a cap on the total | Without a cap, retention keeps growing with every payment. Practice guides report percentages between 5% and 10%, but that is practice, not law. |
| When retention starts and stops | State the first payment it applies to and the event that ends it. |
| First release | Tie it to a clear event, such as the taking-over certificate, and say who issues it and by when. |
| Final release | Tie it to the end of the defects period, and say what happens if defects are open on that date. |
| Form of security | Cash, or a bond in place of cash. The bond’s own terms then decide the claim. |
| Deductions for defects | Say how the owner records a defect, gives notice, and deducts. Article 818(2) is one statutory route for defects found during the works, and it does not decide whether the contract lets the owner deduct from retention. |
| Late release | Say what happens if the owner is late: a notice step, a rate for the delay, or a right to claim. |
| Dispute clause | Say whether the claim goes to court or arbitration, and what notices come first. |
If Retention Is Not Released
Work from the release trigger in the contract.
- Check the release trigger in the contract and whether it has happened, such as the taking-over certificate or the end of the defects period.
- Check whether the owner has recorded defects or deductions in the form the contract requires.
- Send a written demand that follows the contract’s notice clause, and keep proof of delivery.
- Keep the payment certificates, the retention statements, and the correspondence.
- Mind the time limit. Between merchants, a claim about their obligations is not heard after 5 years from the due date, unless a shorter period applies (Commercial Transactions Law, Article 92). The general civil rule is 15 years (Civil Transactions Law, Article 429).
- Decide the forum under the dispute clause, and plan any urgent step before you file.
An owner can hold back payment only where the contract allows it or the law gives a right to refuse. The law lets a party refuse to perform if the matching obligations are due and the other side has not performed (Article 222), but payment is due on delivery or acceptance of a completed part unless agreed otherwise (Articles 826 and 827). Where a deduction concerns uncorrected work, read our guide to a contractor refusing to repair defects.
What Retention Does Not Do
Retention is security, not a shield.
- It does not limit the ten-year guarantee. A clause that tries to exempt or limit it is void (Article 823).
- It does not extend the three-year period to sue on the guarantee (Article 824).
- It does not displace the owner’s other remedies for defective work. Article 818(2) gives one notice-and-correct route during the works, and the general remedies for breach remain available (Article 234).
- It does not give the owner the contractor’s right to hold the item. That right belongs to the contractor (Article 820). For the separate post-delivery liability periods, see our article on contractor liability for latent defects in the UAE.
The Civil Transactions Law applies from 1 June 2026 and does not apply to earlier facts and acts unless it says so (Article 4). A contract signed earlier may fall under the 1985 Civil Code.
Drafting Or Disputing A Retention Clause?
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Questions About Retention
Dealing With Unreleased Construction Retention?
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