Occasionally referred to as a ‘romalpa clause’ or a ‘reservation of title clause”, a retention of title clause is a clause included in a contract that permits a seller to retain legal title to goods sold and delivered to a buyer until certain conditions specified in the sale contract are met, most commonly that the goods have been paid for in full.
In this article, retention of title clauses, we take a look at the steps involved in a retention of title claim.
Please click here to find out more about our commercial litigation services.
Free Initial Telephone Discussion
For a free initial discussion with a member of our new enquiries team, get in touch with us today. We are experienced in dealing with all aspects of retention of title claims and once instructed we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
What things should be considered when drafting a retention of title clause?
A basic retention of title (ROT) clause will specify that legal ownership of the products will not move from the seller to the buyer until the customer has made payment for the goods. A seller’s right of entry into the buyer’s premises to reclaim the items should be included. This is to verify that the seller is not committing trespass by entering the premises.
Additional requirements may be inserted to facilitate repossession, if necessary. These obligations may include the following:
- Separate the items from those of third parties;
- Separate the items from those of third parties;
- Allow the seller access to the buyer’s premises to verify that the obligations are being complied with.
Although the concept of ROT clauses is quite simple, they have become more extensively used in recent years. As a result, such phrases have been reinterpreted to create a charge over the items rather than retaining title. When a charge is established, the buyer acquires legal ownership of the goods, but the seller retains the power to seize and, in most cases, sell the property to satisfy the buyer’s debt. This distinction may appear minor, but it can cause complications because a legitimate charge must comply with specific registration requirements.
All monies clause: the seller retains title to all products supplied to the customer until the buyer pays all outstanding invoices to the seller. This eliminates the requirement to associate individual products located at the buyer’s location with specific unpaid bills.
If this is utilised, it should be in a separate subclause from the ROT clause as a whole. This means that if the all monies clause is ever declared invalid by a court as an unregistered charge, it can be detached without invalidating the remainder of the clause.
Proceeds of sale clause: entitles the seller to the proceeds of any later sale of the goods. This clause should be avoided at all costs, as it may be construed as a charge.
Mixed products clause: permits the seller to assert an interest in goods supplied under the contract that are likely to lose their identity as a result of their use in the creation of another good. However, courts are likely to view an attempt to reserve rights in new items that belong to the buyer as a charge.
How does retention of title work?
A retention of title provision enables physical delivery of goods to a buyer while retaining legal ownership until the products are paid for.
While the buyer is in possession of the items but does not yet own them, a retention of title clause typically imposes a lengthy list of obligations on the buyer (for example, restrictions regarding storage, insurance, and upkeep of the products) until the seller receives payment for them.
Once the buyer has paid for the products, legal title passes to the buyer, who is then free to do as they like with the goods (for example sell them on or use them in the manufacturing of something else).
When can you make a retention of title claim?
If the buyer defaults on payment, the seller may file a retention of title claim and attempt to reclaim the goods.
Alternatively, if the buyer defaults on payment and then becomes bankrupt or enters administration, the seller has a priority claim over the buyer’s other creditors to reclaim possession of the goods.
Is retention of title enforceable?
They can be, but you must exercise caution and avoid certain potential dangers when drafting.
For instance, you must take care that a retention of title clause is not read as an equitable charge, as such a charge would not be enforceable against the liquidator or administrator of an insolvent buyer unless it was registered.
A seller must also act promptly to re-possess items if they fear the buyer is or is going to become bankrupt, as it will be impossible to re-possess things once they have been disposed of by a liquidator or administrator.
How we can help
We have a proven track-record of helping clients deal with a retention of title claim. We are a multidisciplinary firm and have all the expertise inhouse to satisfy the most exacting requirements of our clients. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact Our Commercial Litigation Solicitors
It is important for you to be well informed about the issues and possible implications of a retention of title claim. However, expert legal support is crucial in terms of ensuring a positive outcome to your purchase.
To speak to a member of our New Enquiries Team today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Comments are closed.
