Retention of Title Clauses
What is a retention of title clause?
If you’re offering trade credit for the purchase of goods but don’t want the title in the supplied goods to transfer to your client until they have paid for the relevant credit, you can use a retention of title clause document. This allows you to retain ownership over the goods and enables you to reclaim them if your client fails to settle their debt. Also known as a reservation of title clause, this powerful legal tool gives you a greater level of security and helps you to minimise losses by repossessing the assets which have exchanged hands without being paid for up front.
Will a retention of title clause work with a complex transaction?
Certain transactions are less likely to benefit from a retention of title clause. This is particularly the case in a transaction which involves the transfer of various different components. Where multiple products are sold to a client, it can be difficult to ascertain which goods are covered by a retention of title clause. In this case, it may be better to use an “all monies” clause (also known as an “all sums clause”) as there is no need to determine which goods relate to which contract or invoice; title will not pass in any goods subject to the “all sums” clause until payment is received in respect of all of the goods.
Can I recover money if goods are no longer with your client?
If the goods that you have sold on credit are being sold on to a third party, a retention of title clause will be ineffective, as there will be nothing to repossess from your client. If this is likely to be the case, you can instead use a proceeds of sale clause which entitles you to claim any money earned by your client in selling goods bought on outstanding credit. Separately, where the goods are used in a manufacturing process, a simple reservation of title clause will not be sufficient to recover assets - but you can make use of a mixed goods clause (also known as an aggregated or enlarged clause) which will give you an interest in the resulting manufactured products.
A variety of documents which may help with retention of title clauses can be downloaded from our Business Documents Folder. Click on any relevant templates in the list, below, for further information.