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Retention of title clauses - one to include in your terms of business

06 November 2008

Retention of title clauses are a good thing to have in your terms of business – particularly in a harsh climate.

They allow you to retain ownership of the goods until certain conditions have been met – usually until the goods have been paid for.

If your buyer becomes insolvent before he has paid for the goods, retention of title provisions will allow you to reclaim them since you still own them. With compulsory liquidations alone up by 20 per cent in the first half of this year and more gloom in prospect, this situation is likely to become more common.

A general retention of title provision may not be sufficient: it is important to include other clauses that complement it. For example, you will need permission to enter the buyer’s premises to collect the goods. You may also wish to impose a duty on buyers to store your goods separately so that they are identifiable.

Depending on the way you operate, it may also be worth checking to see whether you have an ’all monies’ retention of title clause. This is relevant where goods are delivered in a series of instalments with a period of credit allowed on each instalment. The ‘all monies’ clause means that the buyer does not obtain ownership of any of the goods until he has paid for all of them.

Retention of title does not cover every eventuality. If your goods have been made into something through a manufacturing process or are otherwise unidentifiable, your chances of recovery are slim. The same is true if the buyer has sold your goods to someone else. Neither should you rely on retention of title provisions alone: they should be regarded as an extra layer of protection within an effective credit control system.

Retention of title clauses are sometimes referred to as ‘Romalpa’ clauses. The name comes from the 1976 case Aluminium Industries Vaasen BV v Romalpa Aluminium Ltd – the case that originally gave suppliers certain rights over the proceeds of sale of goods that had been resold by the buyer. The decision has been distinguished over the years by the courts so that now, if goods are sold on to a third party who bought them in good faith, you are unlikely to recover them.

As always, if you need commercial and pragmatic legal advice, we’re here to help so please get in touch.

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