Can One Defect Hold Up the Entire Construction Retention Payment in the UAE?

What contractors should check before accepting a repair deduction or pursuing unpaid retention.

An employer may be entitled to withhold construction retention while a defect remains unresolved, depending on the terms of the contract and the applicable law. However, the existence of a defect does not automatically justify withholding the entire retention amount.

The employer may argue that the payment has not yet become due under the contract. Alternatively, it may seek to deduct repair costs from amounts otherwise payable to the contractor. These positions involve different contractual and legal considerations.

What Makes the Retention Payable?

Retention is money withheld from construction payments to secure the contractor’s performance of contractual obligations. Its release may depend on the expiry of the defects liability period, completion of outstanding work, issuance of a certificate, or a combination of these conditions.

The expiry of the defects liability period does not necessarily mean that retention must be released immediately. The contractor must establish that the applicable contractual release conditions have been satisfied.

Ask the employer to identify any outstanding requirements under the retention release clause. If that clause conflicts with the payment schedule or a subsequent contractual amendment, a construction law firm can assess the relevant provisions and determine which terms govern the payment.

When the Certificate Is Outstanding

First, establish whether the certificate has been delayed because the repair has not been inspected or because the completed work has been rejected. If the inspection is pending, request a date from the person responsible for arranging it under the contract.

If the work has been rejected, obtain the written reasons and compare them with the agreed repair scope, inspection records and contractual requirements. The contractor can then respond to the specific objections or carry out further remedial work where required.

Look Beyond the Repair Price

Consider a hypothetical dispute involving AED 200,000 in retention and a repair quotation of AED 15,000. The contractor seeks the release of the remaining AED 185,000.

Before pursuing that amount, the contractor must establish why the retention has become payable under the contract and applicable law. The employer’s position must also be assessed against the contractual basis for withholding payment or deducting repair costs.

Compare the proposed repair work with the reported defect. If the quotation includes replacing an entire component, ask whether a more limited repair would adequately address the problem. Any additional work should be identified separately, and responsibility for the damage should be established.

It is also important to distinguish an estimate from an agreed repair price or costs that have already been incurred. A repair estimate does not automatically determine the permissible amount of withholding. The employer must establish the contractual or legal basis for the amount withheld, taking into account the applicable retention provisions and any valid claim for repair costs.

What Permits a Deduction?

Once retention becomes payable, the employer must establish a valid contractual or legal basis for deducting repair costs. Depending on the contract, this may require specific notices, an assessment of the defect, approval of the repair costs or compliance with other procedural requirements.

The contractor should ask the employer to identify the provision relied upon and explain whether the relevant requirements have been satisfied. Where a payment disagreement escalates, obtaining advice on commercial dispute resolution can help the parties assess their contractual rights and available remedies.

The UAE Civil Transactions Law also recognises set-off, under which one debt may be applied against another. Depending on the applicable legal requirements, set-off may arise by operation of law, by agreement or through a court decision. Each route has its own conditions.

The existence of a repair claim does not, by itself, establish an automatic right to deduct the claimed amount from retention. The parties must assess the nature of the competing claims, the applicable contractual provisions and the relevant legal requirements.

Which Law Applies?

Article 826 of the applicable Civil Transactions Law should be checked against the relevant legislation before relying on it to determine when payment becomes due. The contractual terms, including any agreed retention release conditions, must also be considered.

Federal Decree-Law No. 25 of 2025, which introduced the new UAE Civil Transactions Law, took effect on 1 June 2026. For contracts entered into, or events arising, before that date, the applicable transitional provisions must be examined to determine which legal rules govern the dispute. Obtaining commercial law advice can help clarify the applicable law and its effect on the parties’ contractual obligations.

Agreeing to a Partial Payment

The parties may agree to release most of the retention while withholding a specified amount until the repair has been inspected and approved. Alternatively, they may agree on a deduction and settle the payment dispute on that basis.

Any agreement should clearly identify the amount to be released, the payment deadline and the treatment of the remaining retention. If repairs are still required, the agreement should specify who will carry them out, who will approve the costs and how completion will be confirmed.

The parties should also identify any outstanding claims that remain unresolved after the payment arrangement is implemented.

If negotiations fail, commercial dispute resolution lawyers can assess the available options and the procedures required before proceedings begin. Depending on the contract, these may include formal notices, an engineer’s determination, a negotiation period, court proceedings or arbitration.

Conclusion

A construction retention claim should establish when the payment became due, demonstrate that the relevant contractual conditions have been satisfied and address the employer’s specific grounds for withholding or deducting the amount.

Contractors and subcontractors facing delayed retention payments should review the retention clause, defect notices, inspection records, certificates and relevant correspondence before deciding how to proceed.

For advice on disputed deductions, outstanding retention or construction payment disputes, contact AY Advocates to discuss the contractual terms and potential legal options.

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