Improved protection with a retention of title clause

Prudent businesses need to consider every means to protect themselves against non-payment of invoices by their customers and one option is the use of a ‘retention of title’ clause.

The basic legal position when selling goods is that ownership of the goods passes to the buyer at the time stipulated in the contract of sale or, as is more often the case, on delivery.

A retention of title clause in the sales contract will state that ownership of the goods will not pass until certain conditions are met, usually the payment. You would retain title of the goods until all sums owed are paid and would have the right to claim the proceeds from the resale of your goods or rights over new products manufactured from the goods you had supplied.

If you do not already have a retention of title clause, then we can review your terms and conditions of business and draft an appropriate clause. It is important that it should be drafted specific to your business and your position in the supply chain as when the goods are sold on or processed by your customer and then sold on, it becomes trickier to trace the goods and protect the title.

For it to be effective, the timing of when you communicate the retention of title clause to your customer is critical. The buyer must agree to the terms before, or at the time of, the sale and the documentation must show this clearly. Many retention of title claims by suppliers against liquidators fail because the terms are contained on the back of the invoice which was supplied for the first time when the goods were delivered. Make sure that your new customers sign the terms and conditions of sale before the first delivery is made.

Ideally, you should be able to identify the goods in question, perhaps by way of serial numbers or identification plates or labels. If your customer goes out of business, then an administrator or liquidator may invite you to visit a site and identify your goods. It can also help if your terms and conditions require the buyer to store the goods separately if practical.

If your buyer goes into liquidation or receivership you should act immediately. Contact the liquidator or receiver by telephone and letter outlining your position and have copies of the contract and invoices available ready to prove ownership.

It is important to review your terms and conditions of business from time to time and we would be delighted to advise you on any ways in which you could improve the protection to your business, including drafting a retention of title clause where appropriate.

 If you wish to discuss matters further please contact Roger Wilkinson

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.