Enforceability of retention of title clauses

Details

Created: Monday, January 13 2014 12:53

A retention of title clause is a clause in an agreement whereby a person selling goods seeks to reserve or retain the title in those goods until payment has been made for the goods.

In the first instance, it is important to emphasise that retention of title can only be effective if you have actually incorporated a retention of title clause into your legal contract with the purchaser. This could be achieved by including the necessary retention of title wording on an invoice or in your terms and conditions of business.

A basic retention of title clause provides that title to certain goods is retained by you until you have received full payment for those goods.

In order to ensure that the retention of title is robust, additional clauses need to be included. For example, it is prudent to include a clause giving you an express right to enter the buyer’s premises in order to repossess the goods if necessary. Also, the retention of title clause should include a “mixed goods clause” which provides that you will be able to assert rights in any product which incorporates the good supplied notwithstanding that the product in question contains goods owned by third parties.

Where goods are “mixed” with other goods to produce a new good, e.g. the provision of cement to create concrete, any title to the goods will be lost. Depending on how they are drafted, mixed goods clauses may be deemed to be legal charges, and if not registered, will fail and cease to be effective.

A retention of title clause may fail to give protection where goods are attached to land or property for the benefit of the owner of that property. Where goods are deemed to be fixtures and forming part of the land, a retention of title clause will not entitle you to assert title or repossess the goods in question.

On the other hand, if an item is not annexed to land, a basic retention of title clause should succeed in reserving title of the item to you. Retention of title clauses work best over non-perishable goods which can be easily identified e.g. furniture.

It is still necessary for you to exercise considerable care in the repossession of the goods, and you should avoid trespassing on the purchaser’s property unless specific consent has been obtained.