Retention of Title - How effective are your retention of title clauses?

It is often the case that a company will not have cause to review its retention of title clauses until it tries to enforce them against an insolvent company. Reviewing your clauses and your trading practices now can often save a lot of time and money later down the line. So, what is a retention of title clause and what should yours’ aim to do?

The purpose of a retention of title clause is to give the seller of goods priority over secured and unsecured creditors should the buyer become insolvent or unable to pay. There are varying types of clauses and none are completely infallible.

A simple retention of title clause will provide that the seller owns the goods until they are paid for by the buyer. However, if there is a possibility that your buyer may sell your goods on, use your goods to make other products or processes your goods before they have paid in full for them then you may need a more sophisticated clause.

Types of retention of title clauses

 The All Monies Clause

This type of clause attempts to reserve title to all of the goods supplied until the buyer has paid allinvoices that remain outstanding (whether or not the invoices relate to those particular goods). Sometimes this type of clause can be construed as a charge by the courts and should, therefore, be drafted as a separate clause to your basic clause. If your clause is construed as a charge it has to comply with a number of statutory requirements which will not have been met, such as registration at Companies House. If drafted separately, this clause should not affect your basic clause if it fails.

The proceeds of sale clause

This clause attempts to allow the seller to try and claim the proceeds from the sale of the goods. These clauses are difficult to enforce and should be avoided or, again, drafted separately from your basic clause.

The mixed goods clause

This clause attempts to retain an interest in the new goods that have been made using the original goods. This type of clause will often fail as, once again, the court tends to construe them as a charge.

Hints and tips for retaining good title

Having a retention of title clause in your terms is worthless if you are not actually contracting on your terms!

Check your terms of trading

  • On whose terms are you trading?
  • Try and ensure contractual terms are in writing as it is much easier to enforce a written contract than an oral one;
  • Ensure terms are agreed before trading starts;
  • Get evidence of the buyer’s agreement to your terms - a signature or written confirmation by someone with appropriate authority is the best method.
 Identifying your goods
  • Do your terms and conditions require the buyer to store your goods separately until you are paid? This should be included within your terms. The easier it is to identify your goods, the more likely you are to get them back.
  • Are your goods identifiable with your logo or serial number? You are unlikely to be able to enforce your retention of title clause if your goods cannot be distinguished from another suppliers.
Do you have the right to enter the buyer’s premises?
  • Ensure that your clauses are supplemented by the right to enter the buyer’s premises to recover your goods. Without this right, you might be committing a trespass unless you obtain the consent of whoever is now in charge of the premises.
Retention of title claims are common and no clause is completely bullet proof. They are, however, a useful weapon in your armoury and should be included in the terms of any business that sells goods on credit. Thought should be given to your particular circumstances so as to tailor the retention of title clauses to the likely scenarios in which you may have to call upon them.

We are happy to review your terms and conditions or assist you with a retention of title claim against a liquidator or administrator.

Posted on 04/27/2014 by Ortolan

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I have worked with Ortolan Legal since 2010 and used their services extensively. They have provided corporate and commercial legal advice and we have also drawn on their capability in the areas of employment law, dispute resolution and property law. What makes them so different is their ability consistently to deliver commercially focussed and high quality advice at a price point which simply cannot be matched by other law firms. They aim to strip out unnecessary overhead costs, concentrate on the quality of their core service and pass on these cost savings to their clients. It works.

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