Will a retention of title clause work for your business?

With the economic recovery still fragile, businesses who supply goods on credit take the risk that their customers will become insolvent and that they will not get paid.

The default position under English law is that ownership of goods passes to the buyer on delivery unless agreed otherwise by the buyer and the seller, leaving the seller in the position of an unsecured creditor very little chance of recovering the money owed to it by the buyer should the buyer become insolvent.

In an attempt to combat the problem a “retention of title” clause is often incorporated into the sale contract to provide that, although physical possession of the goods has passed to the buyer, title to the goods is retained by the seller.

A well drafted retention of title clause allows the seller to retain ownership of the goods until they are paid for in full and will allow a seller to recover goods from the buyer which have not been paid for.

A simple retention of title clause will provide that the seller’s goods should be stored separately by the buyer and be identified as belonging to the seller and that the seller may enter the buyer’s premises for the purposes of repossession. It will also provide for a list of insolvency-related events that will trigger the seller’s right to demand payment and repossess the goods.

Whilst often highly effective, care must be taken when drafting such clauses as to avoid practical difficulties where, for example, goods are sold on or mixed with other goods in a manufacturing process.

Furthermore, regardless of how well drafted a retention of title clause is, it does need to be incorporated into the contract between the buyer and seller in order to be relied upon.

Used alongside proper credit control procedures, a retention of title clause can prove to be a useful tool for businesses who supply goods on credit.

If you would like advice on whether a retention of title clause would work for your business or whether any existing clause in your terms and conditions is effective, please contact commercial@blasermills.co.uk.