Retention of title clauses

Retention of title clauses are easier to avoid than enforce, but if you supply large quantities of tangible goods and give large amounts of uninsured credit then you need;

(a)       To have a very good and workable retention of title clause; and

(b)       To ensure its incorporation into your commercial agreements (see my blog ‘Incorporating Standard Terms and Conditions’)

A retention of title or ‘ROT’ clause prevents title passing to your customer, even after goods have been supplied; so if you are not paid you can take back possession of your goods.  In the absence of such a clause, title is usually deemed to pass on delivery.

The ROT clause included in your standard terms and conditions should be drafted in a manner that is consistent with your business processes.

To enforce an ROT clause, you need to be able to identify the goods that have been supplied and prove that the price for those goods remains unpaid.

Anybody hoping to enforce an ROT clause should further introduce business processes, whereby their products are packaged in such a way that they are identified by batch number and that batch number is further referred to within a delivery note and invoices make reference to both the relevant batch numbers and delivery notes.  With such a system, it will be easy to identify the goods that still belong to you when your customer fails to pay.  Most liquidators and/or administrators will insist upon such information being clearly given.

If you sell your goods to a wholesaler or retailer and/or distributor and that distributor sells them on without paying you, then an honest purchaser of those goods, without notice of your ROT clause, will buy free from your claim for title.

If you are selling to a designated purchaser acting on behalf of a large company, then it is also good practice to send details of your ROT clause to the end consumer.

A ROT clause will not work where your goods have become attached to the land.

A ROT clause will not work if the goods have become incorporated into another item; so if your sheet metal has been fabricated and incorporated into a machine title will have passed.