A retention of title clause is inserted into a supply contract to ensure a supplier retains ownership of the goods after delivery. This clause is essential to a supplier as it provides them with a remedy if they lose possession of the goods through the fault of the buyer. Greenaway Scott considers the key elements to include in a retention of title clause below.
What to include:
- Reserving full title: The supplier must lay out in the clause that they will retain ownership of the goods and that the legal title only passes to the buyer upon receipt of the full payment for the goods. It is not enough for the supplier to merely retain equitable or beneficial title as full ownership is required to retain possession of the goods. It is advisable to use the words ‘ownership’ or ‘title’ to ensure this is achieved.
- Rights of entry, seizure and sale: The supplier must also ensure the right to enter the buyer’s property to seize the goods is inserted into the contract. If it is not included, the supplier will be liable for trespass by trying to enter and reclaim the goods. This aspect of the retention of title clause should lay out a list of trigger events when the supplier is able to enter the property and reclaim their goods. An example of this would be when the buyer has failed to provide the final payment for the goods.
- Separate storage of the goods: Linking to the aspect above, it is advisable to input that the goods must be kept separate into the retention of title clause. This is due to the supplier only being able to seize goods if they are physically separated from other goods. To strengthen the supplier’s position, they should seek for the goods to be with the supplier’s details also.
- Passing of risk and insurance: A major issue with retaining possession until the buyer has provided full payment is the supplier retains the risk of the goods. As the physical goods will be in the possession of the buyer, this is not desirable as they are out of the supplier’s control. As such, it is important to draft for the risk to pass to the buyer upon delivery. Linking with this, the clause should contain that the buyer insures the goods and holds the proceeds on trust for the supplier.
What are the risks of failing to draft the above into a supplier contract?
The risks of not including the above can be detrimental to the supplier. If they do not include a retention of title clause stating that ownership does not pass until the final payment has been received, the buyer will obtain ownership on delivery. This means that if a buyer defaults on the payments, the supplier cannot reclaim the goods or cannot sue for breach of contract should the goods become destroyed or mixed up with other goods. This will leave the supplier out of pocket as they are without the goods to resell and without damages for the loss of the goods.
The information contained in this article is for information purposes only and is not intended to constitute legal advice. If you require further information our commercial team would be more than happy to assist you. Please contact us at [email protected] or call us on 029 2009 5500 to speak to one of our team.