Holding Back the Final Payment Against Snags: A Worked Example

A retention only works if it is proportionate to the work outstanding. An illustrative calculation of what to hold, what it buys and what it risks.

The final payment is the only leverage a buyer has at handover, and it is usually spent badly: either released in full against a promise, or withheld in an amount so large that the developer stops cooperating altogether. A proportionate retention, calculated from the priced value of the outstanding work, keeps the relationship functional while giving you a reason to be taken seriously.

The situation

A buyer is taking handover of an apartment bought off plan for SAR 1,100,000, with a final payment of SAR 110,000 due at handover. An independent inspection has produced a list of outstanding items. All figures below are illustrative assumptions used to show the arithmetic, and whether any retention is permitted at all depends on the contract and the applicable rules.

Assumptions (illustrative)

• Purchase price: SAR 1,100,000, with a final payment of SAR 110,000 due at handover.
• Snag list: 34 items, of which 4 are system faults and 30 are finishing items.
• Assumed cost to remedy the 4 system items: SAR 16,000 in total.
• Assumed cost to remedy the 30 finishing items: SAR 11,000 in total.
• Assumed cost of a re-inspection visit: SAR 2,000.
• Assumed rent forgone if occupation is delayed by one month: SAR 6,000.

Step 1: Price the outstanding work rather than counting items

SAR 16,000 for system items plus SAR 11,000 for finishing items equals SAR 27,000.

Thirty-four items sounds alarming and prices at a fraction of the final payment. Pricing converts an emotional list into a negotiating position, and it also tells you which items are worth arguing about: four system faults carry more than half the cost of the entire list.

Step 2: Add the cost of verifying completion

SAR 27,000 plus SAR 2,000 for re-inspection equals SAR 29,000.

Someone has to confirm the work was actually done, and that cost belongs in the calculation. Buyers who omit it end up either paying for verification themselves or accepting the developer's own confirmation, which is the step where items get closed on paper.

Step 3: Set a retention with a margin, not a punishment

SAR 29,000 multiplied by 1.5 equals SAR 43,500, which is about 40 per cent of the final payment.

A margin covers the items that turn out worse once opened up. Holding roughly one and a half times the priced value is defensible and explainable. Holding the whole SAR 110,000 against SAR 29,000 of work invites a dispute about the retention itself rather than about the defects.

Step 4: Compare the retention with the cost of delay

One month of delayed occupation at SAR 6,000 against a retention of SAR 43,500 covering SAR 29,000 of work.

If insisting on completion before occupation costs two months, you have spent SAR 12,000 of value to protect SAR 29,000 of work. Taking possession while holding the retention is usually the better structure, provided the right to hold it is documented.

Step 5: Split the retention by item type

Hold SAR 24,000 against the four system items and SAR 19,500 against the thirty finishing items.

Splitting lets you release the finishing retention when the cosmetic work is signed off, while keeping the system retention until cooling, drainage and electrical items are verified in operation. It also gives the developer a reason to do the hard items rather than the easy ones first.

Step 6: Define the release trigger in writing

Release each tranche within a defined period of written confirmation that the listed items have passed re-inspection.

A retention with no release mechanism becomes a dispute of its own. The trigger has to be an event the developer can achieve and you can verify. Without that, the money sits and the goodwill you needed for the remaining work disappears.

What changes the answer

• If the contract does not permit a retention, the structure has to be agreed rather than imposed.
• A longer snag list dominated by cosmetic items justifies a smaller retention, not a larger one.
• A system fault that proves to be a design issue rather than a defect changes both cost and responsibility.
• Where the unit is let, the rent forgone during remedial work changes the balance towards taking possession.
• A developer approaching the end of its involvement in a project may value release of funds more highly, which strengthens your position.

What the numbers tell you

• Price the list before you decide what to hold, because the count of items is not the measure.
• Keep the retention proportionate so the argument stays about the defects.
• Include the cost of verifying completion in the amount you hold.
• Split the retention so that system faults are secured separately from cosmetics.
• Write the release trigger down, otherwise the retention becomes the dispute.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira handles the property side of a Saudi transaction end to end: inspecting the unit, reading the documents, valuing what is in front of you and managing the asset after handover. Tell Domira what you are buying, selling or letting and you will get a plain answer on what it is worth doing.