Retention Of Title: Taking Back What's Yours?

What is retention of title?

A retention (or reservation) of title clause is a clause in an agreement whereby a party selling goods seeks to reserve to itself the title in those goods until certain conditions have been met by the buyer, usually payment. The key reason for including a retention of title clause is to give the seller of goods priority over secured and unsecured creditors of the buyer, should he becomes insolvent.

The basic clause provides that title to certain goods is retained by the seller until it has received full payment for those goods. However, in order to be in a position to give full effect to this protection, additional clauses should also be included. For example, in order to avoid committing a trespass, an express right to enter the buyer's premises in order to repossess the goods is necessary. In addition, a clause requiring the buyer to store the seller's goods separately from other goods, to mark them as the seller's property, and to allow the seller access to the buyer's premises to verify that this has been done is also helpful. You may also want to include a list of insolvency related events which will trigger the seller's right to demand payment for the goods (if not already due) and to repossess them.

Sometimes retention of title provisions seek to obtain additional protection through the inclusion of some or all of the following clauses:

an all monies clause (i.e. the supplier reserves title in certain specified goods until all monies due to it has been received, rather than monies due for those goods only); proceeds of sales clauses (providing that the supplier retains a right of ownership over funds received by the buyer on resale of the goods in question); mixed goods clause (providing that the supplier 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). Depending on how they are drafted, however, such clauses may be found by courts to be charges, and if not registered, will fail and cease to be effective. If included, these additional clauses should be drafted separately from the basic retention of title clause along with a "severability" clause, to ensure the basic retention of title clause will remain in effect, even if these other clauses are struck out or otherwise found to be ineffective.

Their effectiveness in construction

In the construction context, a key factor lessening the...