What Makes a Good Retention of Title Clause
Here you can download our What Makes A Good Retention Of Title Clause booklet. An example of the useful information you can find in the booklet is featured below.
A Retention of Title clause is a clause in an agreement or in a supplier’s terms of business which allows the supplier to retain ownership over goods until certain specified conditions are satisfied. A Retention of Title clause can also be referred to as “ROT” and is occasionally called a “Romalpa” clause.
Many suppliers of goods find that a well drafted and properly used ROT clause is a useful form of protection in case a customer fails to pay for the goods, defaults under the agreement or becomes insolvent.
In order for a supplier to make sure that any ROT clause that they use can be successfully enforced, we would suggest that consideration is given to the following:
It is absolutely essential that any ROT clause is properly incorporated into the agreement or contract that you have with your customer and that you can evidence that your customer has agreed to that ROT clause, ideally in advance of the goods being supplied to it. We would suggest that you ask your customer to sign a copy of your contract or terms of business that includes the ROT clause, and that you keep a copy of the signed document. We often see instances of suppliers only notifying customers of a retention of title clause by including it at the bottom of an invoice, which is only sent to the customer after goods have been delivered or the order placed. This type of “after the event” notification where there is no indication that the customer has agreed to an ROT clause, or was even aware of it, is unlikely to be valid.
In order to successfully enforce an ROT clause you need to be able to identify what you have supplied to your customer and be able to prove that the items in the customer’s possession belong to you and not to any other party who may supply similar items. One of the best way to do this is by reference to unique identification codes such as serial numbers or model numbers or batch codes. In addition to making sure that the unique identification codes are placed on the goods you supply you will also want to make sure that the codes cannot easily be deleted or removed by your customer and also to ensure that you maintain full records so you can track which products were delivered to which customer under which invoice. If your internal record keeping is not up to scratch it is difficult to rely on the codes that you may have applied to your goods.
In addition to the point issue mentioned above, you may want to include an obligation on the customer to store your items in a separate area, away from goods that belong to the customer itself or to third parties. This can also assist you in identifying which goods are yours when it comes enforcing an ROT clause and may prevent any third party who is seeking to seize assets belonging to your customer (e.g. an enforcement officer) from accidentally seizing your goods as well?
4. All Monies Or Simple?
The most basic form of an ROT clause is one which says that the supplier retains ownership of certain specific goods until the customer has paid for those particular goods. An all monies or “current account” clause goes beyond this to say that a supplier will retain title over all goods supplied to the customer until the customer has paid all outstanding invoices in full. In cases where there is only a simple clause it is especially important to ensure there is certainty on the identification point so that a supplier can prove which goods go with which unpaid invoice. Most well drafted agreements or terms of business will include both a simple ROT and an all monies clause.
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Should you require any further assistance at all with these matters, then please contact one of our corporate specialists on 020 7841 0390 and we will be happy to discuss this with you.