In this article we address a significant change in Portuguese legislation: Decree-Law no. 48/2024 of 25 July, which brought a new dynamic to the prevalence of the right of retention over the mortgage. This topic is crucial to understanding the implications for the current legal framework, especially in cases of insolvency and company rescue. Let’s explore what the right of retention is, how it applied previously and the novelties introduced by the recent legislative change.
What is the Right of Retention?
In general terms, ‘right of retention’ can be defined as the right of someone (the retainer) to retain, or not return, a third-party thing that they own until the respective owner pays what is owed to them on account of that thing.
Antunes Varela(1), a renowned Portuguese law professor, defined the right of retention as:
The right conferred on the creditor, who is in possession of a certain thing belonging to the debtor, not only to refuse to hand it over until the debtor fulfils his obligation, but also to execute the thing and pay himself at the cost of its value, with preference over other creditors.
However, in order for the right of retention to exist, it is necessary for the retainer’s claim to result from expenses incurred as a result of the property retained (movable or immovable) or damage caused by it.
Examples of Right of Retention
Paradigmatic examples of the right of retention are those conferred on the contractor over the property which is the subject of the contract, for as long as the owner of the work has not paid the price of the work, whether it has been finished or not, as well as the position of the promissory purchaser of immovable property, who is qualified as a consumer and provided that he has obtained delivery of the thing before the promised contract, for the credit resulting from the default attributable to the promissory seller.
The New Legislation: Decree-Law no. 48/2024
With the legislative change to the right of retention regime, now introduced by Decree-Law 48/2024, this right no longer prevails as a rule over the mortgage, contrary to what had been the case since 1967, when our Civil Code came into force. The aim is to achieve a revised legal framework for insolvency and company rescue (where the clash between the right of retention and the mortgage is common) with a view to speeding up these processes, giving precedence to the mortgage in most situations.
When the Right of Retention Still Prevails
From now on, the right of retention only takes precedence over the mortgage, even if the latter was registered at an earlier date, in cases where the retention is intended to ensure reimbursement of expenses incurred with the property that have contributed to preserving it or increasing its value.
Practical Impact
In practical terms, if a judgment debtor or insolvent person has, among other creditors, a retainer and a mortgage creditor, the retainer will only be paid in preference to the mortgage creditor if his secured claim is intended to ensure the reimbursement of expenses incurred in conserving or increasing the value of the property belonging to the debtor.
If you would like to know more about this or any other topic related to real estate law, please do not hesitate to contact our team here.
(1) Antunes Varela, Das Obrigações em Geral, Vol. II, Almedina, Coimbra, 7ª edição, 1997, pág. 579.
