diff --git a/CHANGELOG.md b/CHANGELOG.md
index f2e13db2b..51b4d6a1c 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -12,6 +12,7 @@
 * Add "linked-data 1.0" interface to "optionalOkapiInterfaces". Refs UIIN-3166.
 * Remove hover-over text next to "Effective call number" on the Item record detail view. Refs UIIN-3131.
 * Change import of `exportToCsv` from `stripes-util` to `stripes-components`. Refs UIIN-3025.
+* Display failure message during `Update Ownership` action when Item contains Local reference data. Fixes UIIN-3195.
 
 ## [12.0.10](https://github.com/folio-org/ui-inventory/tree/v12.0.10) (2025-01-20)
 [Full Changelog](https://github.com/folio-org/ui-inventory/compare/v12.0.9...v12.0.10)
diff --git a/src/views/ItemView.js b/src/views/ItemView.js
index 4e4e0bfa6..7c4b2a1e1 100644
--- a/src/views/ItemView.js
+++ b/src/views/ItemView.js
@@ -540,15 +540,28 @@ const ItemView = props => {
     goBack();
   };
 
+  const resetFormAndCloseModal = () => {
+    setTargetTenant({});
+    setUpdateOwnershipData({});
+    setIsConfirmUpdateOwnershipModalOpen(false);
+  };
+
   const showErrorMessage = () => {
     calloutContext.sendCallout({
       type: 'error',
       message: <FormattedMessage id="ui-inventory.communicationProblem" />,
     });
 
-    setTargetTenant({});
-    setUpdateOwnershipData({});
-    setIsConfirmUpdateOwnershipModalOpen(false);
+    resetFormAndCloseModal();
+  };
+
+  const showReferenceDataError = () => {
+    calloutContext.sendCallout({
+      type: 'error',
+      message: <FormattedMessage id="ui-inventory.updateOwnership.items.message.error" />,
+    });
+
+    resetFormAndCloseModal();
   };
 
   const createNewHoldingForlocation = async (itemId, targetLocation, targetTenantId) => {
@@ -590,8 +603,12 @@ const ItemView = props => {
           targetTenantId: tenantId,
         });
         showSuccessMessageAndGoBack(item.hrid);
-      } catch (e) {
-        showErrorMessage();
+      } catch (error) {
+        if (error.response.status === 400) {
+          showReferenceDataError();
+        } else {
+          showErrorMessage();
+        }
       }
     }
   };
diff --git a/src/views/ItemView.test.js b/src/views/ItemView.test.js
index 96f092ecc..a36586ed8 100644
--- a/src/views/ItemView.test.js
+++ b/src/views/ItemView.test.js
@@ -376,10 +376,42 @@ describe('ItemView', () => {
           expect(screen.queryByText('Linked order line')).not.toBeInTheDocument();
         });
 
-        describe('when an error was occured', () => {
+        describe('when error was occured due to local-specific reference data', () => {
           it('should show an error message', async () => {
             useHoldingMutation.mockClear().mockReturnValue({ mutateHolding: mockMutate });
-            useUpdateOwnership.mockClear().mockReturnValue({ updateOwnership: jest.fn().mockRejectedValue() });
+            useUpdateOwnership.mockClear().mockReturnValue({
+              updateOwnership: jest.fn().mockRejectedValue({
+                response: {
+                  status: 400,
+                }
+              })
+            });
+            checkIfUserInCentralTenant.mockClear().mockReturnValue(false);
+
+            renderWithIntl(<ItemViewSetup />, translationsProperties);
+
+            const updateOwnershipBtn = screen.getByText('Update ownership');
+            fireEvent.click(updateOwnershipBtn);
+
+            act(() => UpdateItemOwnershipModal.mock.calls[0][0].handleSubmit('university', { id: 'locationId' }, 'holdingId'));
+
+            const confirmationModal = screen.getByText('Update ownership of items');
+            fireEvent.click(within(confirmationModal).getByText('confirm'));
+
+            await waitFor(() => expect(screen.queryByText('Item ownership could not be updated because it contains local-specific reference data.')).toBeDefined());
+          });
+        });
+
+        describe('when error was occured', () => {
+          it('should show an error message', async () => {
+            useHoldingMutation.mockClear().mockReturnValue({ mutateHolding: mockMutate });
+            useUpdateOwnership.mockClear().mockReturnValue({
+              updateOwnership: jest.fn().mockRejectedValue({
+                response: {
+                  status: 500,
+                },
+              })
+            });
             checkIfUserInCentralTenant.mockClear().mockReturnValue(false);
 
             renderWithIntl(<ItemViewSetup />, translationsProperties);
diff --git a/translations/ui-inventory/en.json b/translations/ui-inventory/en.json
index fffbf33f1..204c2d47f 100644
--- a/translations/ui-inventory/en.json
+++ b/translations/ui-inventory/en.json
@@ -446,6 +446,7 @@
   "updateOwnership.items.modal.heading": "Update ownership of items",
   "updateOwnership.items.modal.message": "Would you like to update ownership of Item <strong>{itemHrid}</strong> from <strong>{currentTenant}</strong> to <strong>{targetTenant}</strong>?",
   "updateOwnership.item.message.success": "Ownership of item <strong>{itemHrid}</strong> has been successfully updated to <strong>{targetTenantName}</strong>",
+  "updateOwnership.items.message.error": "Item ownership could not be updated because it contains local-specific reference data.",
   "consortialHoldings": "Consortial holdings",
   "instanceData": "Administrative data",
   "instanceHrid": "Instance HRID",