The right of lien and right of retention are two different security terms, yet they seem to be written together in many contracts. According to the law, a lien is the legal right of a creditor while the right of retention is the right of a creditor to hold the items until the debtor pays the due amount. So theoretically, the former right involves creditor only, and the latter involves both the parties. Now when it comes to the application of retention rights on a global level, it is mostly used in the construction industry and often 5% is the limit for accounts payable.
Another matter is of Preferential Creditors (or preferred creditors in some jurisdictions) when it comes to the liquidation of a company and distribution of its assets. It is often a matter of uncertainty when it comes to defining preferences. For the sake of clarification, a contractor may want to keep possession of the property in the case of non-payment of due amount. In many cases, even a sub-contractor is witnessed claiming a lien over the client’s property in case of contractor’s inability to make the payment.
Coming back to the previous discussion as to how they both can be differentiated from each other and the best way to distinguish them is by the degree of control over the goods. In case of lien, the agent’s rights are limited when it comes to dealing with the property – he can retain the goods until the due amount is paid, but he can’t sell it off or give away without the consent of the owner. Whereas the right of retention gives the creditor an authority to withhold the delivery of goods until the debtor has cleared the due amount; however the creditor has no control once the goods are delivered. In case of inability to make the payment/insolvency, it is necessary to include wording that ensures the recovery of goods. According to the English law, one can incorporate wording stating the buyer acknowledges that goods are seller’s property and he can act as a bailee for the seller. The important thing to note here is that the retention fails where it is incorporated as a fixture or into any other product. Advance payment is the best approach here.
In such cases where the seller doesn’t have the possession of goods, covered by the retention right, at the moment, the law gives him the absolute right to recover the amount if the goods are resold to any third-party client. In cases like these, there is no certain requirement of a contract that contains the wording that ensures payment of the resale to the seller. Subject to some situations, it can be assumed that third-party client may be entitled to return the goods, except when it is purchased with bad intentions.