Keeping ownership until you’re paid

After all you have not been paid so they remain your property don’t they? It can get complicated and that’s where a Retention of Title clause in your Terms and Conditions is absolutely essential.

What is a Retention of Title clause?

A Retention of Title (ROT) clause is also sometimes known as a Romalpa clause after the case law that established the principle. Its purpose is to ensure that ownership of the goods ONLY passes to the buyer after full payment has been received.

This can be of utmost importance in a situation where the buyer becomes insolvent as it can remove those goods specifically from any insolvency proceedings, because they would never have been legally owned by the seller.

‘All Sums Due’

You can go one stage further and have an ‘All Sums Due’ clause. This will allow you to recover all goods supplied to the value of the outstanding balance.

Limitations

Unfortunately, an ROT clause is not always easily enforceable. Your goods must be clearly identifiable and not permanently incorporated into something else. It can also become tricky to apply in the case of services, unless there is clearly identifiable intellectual property involved, for example.

Preparation is key

Make sure that your ROT clause is agreed in advance and forms part of your Terms and Conditions that are clearly communicated to your customers. Obtain legal advice on your Terms and Conditions to ensure you know that they are utterly robust. Adding an ROT to a delivery note, for example, will most likely mean that it cannot be enforced.

Late payment still applies

Don’t forget that the fact that you have had to effect your ROT clause inherently means that you have not been paid. Therefore, late payment interest and compensation under the Late Payment Act are still due.

Prevention and preparation ensure that you thrive

ROT is a tool to be used when things don’t go to plan. But it is no substitute for thorough credit vetting at the outset. Make sure you are completely clear about the risks of doing business with a particular business before you start.