Retention of Title: a brief overview
A retention of title clause is intended to give a seller of goods the ability to recover the goods if they are not paid for, title/ownership of the goods remaining with the seller until full payment of the goods is received by the seller.
Retention of title clauses can be particularly useful where a buyer becomes insolvent, albeit their effectiveness is limited in an administration scenario.
Basic Retention of Title Clause
At its most basic, a retention of title clause will state that that title/ownership of the goods will remain with the seller until the seller receives full payment of the goods. A retention of title clause will usually
- give the seller the right to enter the buyer's premises to repossess the goods, if necessary; and
- oblige the buyer to:
- keep the goods separately from goods belonging to a third party
- mark the goods as the seller's property; and
- allow the seller access to the buyer's property to satisfy the seller that this has been done.
Difficulties can arise where the buyer attaches the goods to its premises e.g. large machinery. This is because the seller may be unable to recover the goods without damaging the buyer's property. Where there is a risk that this could happen, a clause can be added which prohibit the affixing of the goods to any building or structure without the seller's consent.
All Monies Clauses
Under an all monies clause, the seller reserves title/ownership over all of goods supplied to the buyer until the buyer has paid in full for all goods supplied to the seller, irrespective of the fact that the buyer may have already paid for some of the goods supplied by the seller.
It is common for an all monies clause to be a standalone clause in a contract, in addition to a basic retention of title clause. That way, if the all monies clause is determined to be invalid by the Court (there is a school of thought that all monies clauses are akin to a charge and unenforceable) and struck out, the seller can still fall back on the standard retention of title clause to minimise its losses.
Common problems with Retention of Title Clauses
Problems also arise where the goods supplied are mixed with other goods to create a new product. The law governing this situation can be complicated and a basic retention of title clause may be ineffective. A 'mixed goods clause' can be added to a contract in an effort to preserve the seller's interest in the goods, the clause stating that the seller acquires a right in any product produced from the goods. Mixed goods clauses have, however, been held by the Court to be ineffective.
Where a company is in administration, or notice of an intention to appoint an administrator has been filed, no steps can be taken to recover possession of any goods supplied to the company without the permission of the Court or the administrator. If a seller becomes aware that a buyer possible is soon to enter administration, consideration should be given to relying upon the retention of title clause asap to recover any goods supplied.
A retention of title clause is worthless if it does not form part of the contractual terms governing the relationship between 2 parties. A seller should ensure that its terms of business (which includes a retention of title clause) governs the supply of any goods and, more particular, ensures that the buyer has a full copy of those terms.
If you have any queries arising from this article or would like to suggest a topic for a future debt recovery/insolvency based article, contact Chris Drinkall on 01482 337367 or firstname.lastname@example.org
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.