New Supreme Court Rules on Retention Fee Statutes of Limitations

Are you waiting for the payout of a retention fee and relying on the fact that you have three years to claim it from the moment you request it? Be careful; recent decisions by the Czech Supreme Court have fundamentally changed the rules of the game. In this article, we explain why your right to these funds may be time-barred much earlier than you think and what steps you must take to protect your finances under Czech law.

Do you need advice on this topic? Contact our Prague-based law firm ARROWS at office@arws.cz or call +420 245 007 740. Your inquiry will be gladly answered by "Mgr. Daniela Sobotková", an expert on this matter within the Czech legal system.

The Legal Nature of Retainage: More Than Just a Deferred Payment

To correctly understand the issue of the statute of limitations, it is absolutely essential to first understand what retainage (pozastávka) actually is from a legal perspective. Many entrepreneurs mistakenly believe it is a mere deferral of the maturity of part of the contract price. However, the case law of the Czech Supreme Court repeatedly confirms that it is a much more complex legal instrument.

In reality, retainage represents a contractual agreement where the right to payment arises only after a certain condition precedent is met. This means that until the agreed conditions (for example, defect-free handover of the work, expiry of the warranty period) are fulfilled, the contractor's claim for the payment of this amount does not exist at all. This view was confirmed by the Supreme Court of the Czech Republic, for example, in its decision Case No. 23 Cdo 2220/2023.

This legal interpretation creates a dangerous illusion of a "dormant right." Learn more about managing complex investment projects in our article on Cross-Border Construction Law and Building Due Diligence in the Czech Republic: What Foreign Investors Should Know. Managers may believe that until they formally request the release of the retainage, their claim is safely stored and not subject to the statute of limitations. However, the legal reality is that the invisible clock of limitation may have started running the moment the conditions were factually met, regardless of formal steps. This is precisely why our Prague-based attorneys at ARROWS, when preparing construction contracts, place extraordinary emphasis on the precise and unambiguous definition of these conditions to prevent future disputes for the client over whether the claim has even arisen. In this area, ARROWS provides comprehensive services and negotiation regarding contractual terms under Czech law.

Statute of Limitations: Basic Rules and the Key Concept of actio nata

According to the Czech Civil Code, the general limitation period for property rights is three years. However, the most important question is not the length of the period, but determining the moment it begins to run. The law stipulates that the limitation period runs from the day the right could have been exercised for the first time. In this area, ARROWS provides Commercial Litigation & Arbitration in the Czech Republic expertise to protect your claims. Legal theory refers to this moment by the Latin term actio nata.

The concept of actio nata in business practice means one thing: the decisive factor is not the day you sent the invoice or a payment demand, but the first day you had the right to send that invoice and expect its payment. This is a subtle but absolutely fundamental difference, which is a source of frequent errors and irretrievably barred claims worth millions of Czech korunas. Find details on how to handle similar financial disputes in our guide on How Portuguese Businesses Can Recover Debts in the Czech Republic: Practical Legal Tips.

Analyzing the moment of actio nata is a key part of the legal assessment of debt enforceability, which our Czech legal team at ARROWS performs on a daily basis for our clients, including more than 250 limited liability companies and 150 joint-stock companies.

FAQ – Legal Tips on Limitation Periods in the Czech Republic

• What is the general length of the limitation period for commercial receivables?

• Answer: Under the Czech Civil Code, the general limitation period is three years. However, it is crucial to correctly determine the day from which this period is calculated. For an immediate assessment of your situation, write to us at office@arws.cz.

•  Can a Czech court take the statute of limitations into account even if the debtor does not plead it?
• Answer: No, the court considers the statute of limitations only based on an active plea by the debtor. If the debtor does not raise it, the court will grant you the right even after the period has expired. However, relying on this is a huge risk. You might be interested in our analysis of How Albanian Companies Can Bring Disputes Before Czech Courts: An Accessible Guide to Litigation for more insights on court proceedings. Do you need legal assistance in litigation in Czech courts? You might be interested in what errors in development financing agreements lead to legal disputes. Contact us at office@arws.cz.

Breakthrough Judgment of the Supreme Court: A New Era in Time Calculation

Until recently, there was uncertainty among creditors on how to correctly determine the start of the limitation period for receivables whose maturity depends on their own activity (e.g., issuing an invoice). This uncertainty was removed by a unifying judgment of the Grand Chamber of the Supreme Court of the Czech Republic, Case No. 31 Cdo 3125/2022, which represents critical information for every entrepreneur operating in the Czech Republic.

The Supreme Court confirmed that for obligations payable upon the creditor's request, the limitation period does not run from the moment the invoice becomes due, but from the day following the day the creditor first acquired the right to trigger that maturity. Simply put: the three-year countdown for your lawsuit does not start 15 days after sending the invoice. It starts the day after you could have sent that invoice for the first time.

This decision transforms a creditor's passive waiting from a commercial delay into an active legal weapon for the debtor. An experienced debtor is aware that every day a creditor delays invoicing shortens their own window for judicial enforcement. The creditor's inactivity thus becomes a strategic advantage for the debtor. Our Prague-based attorneys at ARROWS constantly monitor the development of case law, and we immediately implemented this judgment into our advisory services to protect clients from losses. Contact us at office@arws.cz to obtain a tailored legal solution.

Who can you contact?

Mgr. František Bárta

associate, partner

• barta@arws.cz

Mgr. Alice Dajčarová, LL.M., MSc.

associate

• dajcarova@arws.cz

When does a retention payment become time-barred? Practical application and risks for contractors

By combining the above principles, we reach a fundamental conclusion: The limitation period for the payment of a retention begins to run on the day following the day when all contractual conditions for its release were met. Your subsequent request or invoicing no longer has any effect on this moment under Czech law.

Let's imagine several typical situations:

• Scenario A: Expiration of the warranty period. The contract stipulates that the retention is payable after the end of a five-year warranty period. If no defects were reported during this time, the contractor's right to the retention payment arises the day after these five years expire. From this day, the three-year limitation period begins to run, regardless of when the contractor sends the release request.
• Scenario B: Remedying defects. The retention is tied to the removal of all defects listed in the handover protocol. The right to its payment arises the day after the last defect was demonstrably removed. If the contractor does not immediately request confirmation and issue an invoice, time is already running against them.

But what if the client intentionally prevents the fulfillment of conditions, for example, by refusing to take over the repaired work? The Czech Civil Code addresses these situations in Section 549, which stipulates that if a party who benefits from the non-fulfillment of a condition unlawfully thwarts its fulfillment, the condition is considered fulfilled.

Resolving disputes over whether the conditions for releasing a retention have been met is a common part of our practice. Our Czech legal team is ready to help you – write to office@arws.cz.

Risk table for contractors (suppliers)

Client protection and international aspects

Although retention is a tool for client protection, its incorrect use also carries risks. Unjustified withholding of retention after conditions are met can lead to an obligation to pay the contractor default interest and potential damages. A client also cannot arbitrarily withhold retention based on an unsubstantiated contractual penalty.

For companies operating in international markets, the situation is further complicated. While the principles of Czech law are now clear, international projects often use standardized contracts, such as FIDIC forms. These contracts have their own specific mechanisms for claiming and dispute resolution, which may modify national legislation.

Thanks to our ARROWS International network, built over ten years, we handle disputes with an international element practically every day. We provide legal advice that takes into account both Czech law and international contractual standards. Do not hesitate to contact our law firm in Prague – office@arws.cz.

Risk table for clients

Proactivity is the key to protecting your finances

The era of passively waiting for holdbacks to be paid has ended. Current legal practice in the Czech Republic, shaped by key decisions of the Supreme Court, requires maximum proactivity from creditors. Your inaction is not neutral; it is a direct path to the loss of your rights and financial resources. Whether you are a contractor striving to secure cash flow or a client who wants to ensure quality work without unnecessary legal risks, the key to success is a clear strategy and professionally prepared contractual documentation under Czech law.

At ARROWS, we rely on experience from long-term cooperation with a portfolio of more than 150 joint-stock companies and 51 Czech municipalities and regions. We pride ourselves on speed, high quality, and a business-oriented approach. Do not wait until it is too late and your claim becomes time-barred. Get in touch with our Prague-based attorneys today at office@arws.cz and arrange a consultation to protect your investments and receivables.

FAQ – Frequently asked legal questions regarding the statute of limitations on holdbacks in the Czech Republic

1. What should I do if the client refuses to sign the protocol on the removal of defects, even though everything is in order?
   Answer: If the client refuses to confirm the fulfillment of conditions without justification, it is necessary to formally and demonstrably call upon them to do so. If they still fail to cooperate, it may be considered intentional obstruction under the Czech Civil Code (Section 549 of the Civil Code) and the condition may be deemed fulfilled. In such a case, it is crucial to have evidence that the defects were actually removed. If you are dealing with a similar issue, contact our Czech legal team at office@arws.cz.
2. Has the limitation period started to run even if I never called upon the client to pay the retention money or issued an invoice?
   Answer: Yes, most likely. According to a key judgment of the Supreme Court of the Czech Republic (31 Cdo 3125/2022), the limitation period begins to run from the moment you could have first issued the request or invoice, not from when you actually did so. To assess your specific situation, do not hesitate to contact our Prague-based attorneys at office@arws.cz.
3. The contract states that the retention money is payable "upon request." Does this mean I have unlimited time to make the request?
   Answer: No, you do not. This is precisely the biggest myth. Your right to request payment from the client arose the moment the conditions for releasing the retention were met. From that moment, a three-year limitation period under Czech law begins for you to assert the entire claim in court. Do you need help with this? Our Prague-based attorneys are at your disposal at office@arws.cz.
4. What is the difference between the limitation period under the old Czech Commercial Code and the current Czech Civil Code?
   Answer: While the old Commercial Code established a general four-year limitation period, the current Civil Code operates with a general three-year period. However, more important than the length is the principle of its commencement confirmed by case law, which is now stricter for creditors. For a detailed analysis of your case, contact us at office@arws.cz.
5. Can the client set off their own claim (e.g., a contractual penalty) against my claim for the payment of retention money?
   Answer: Yes, a set-off is possible, but only if the client's claim is valid and existing. The client cannot withhold retention money based on a fictitious or unjustifiably applied contractual penalty. Defense against such a procedure requires expert legal argumentation. Our Czech legal team is ready to help you – write to office@arws.cz.
6. Our company carries out projects abroad. Do the same rules apply there?
   Answer: Not necessarily. Every legal system has its own regulation of limitation periods. Furthermore, international projects often use contract standards such as FIDIC, which have their own rules. It is essential to assess which law governs the contract and what the contractual terms are. We have extensive experience with these cases thanks to the ARROWS International network. For a consultation, contact us at office@arws.cz.

Disclaimer: The information contained in this article is for general informative purposes only and serves as a basic guide to the issue. Although we ensure maximum accuracy of the content, legal regulations and their interpretation evolve over time. To verify the current wording of regulations and their application to your specific situation, it is necessary to directly contact ARROWS law firm in Prague (office@arws.cz). We bear no responsibility for any damages or complications arising from the independent use of information from this article without our prior individual legal consultation and professional assessment. Every case requires a tailor-made solution, so please do not hesitate to contact us.

Read also:

• How to Pursue Debt Recovery in the Czech Republic as a Greek Business: Practical Legal Guidance
• How Finnish Companies Can Collect Debts in the Czech Republic: Tools and Procedures
• How to Enforce Outstanding Debts in the Czech Republic: A Legal Guide for Danish Businesses
• How to Resolve Legal Disputes in the Czech Republic as a Croatian Company: What to Expect
• Czech Insolvency Proceedings: A Practical Guide for Foreign Creditors