How to Protect Your Business with a Retention of Title
Non-payment for goods supplied is an ever-increasing risk for businesses. This can be particularly harmful to a business if a key customer becomes insolvent, so it is important to understand the measures you can take to limit your exposure to the risk of non-payment.
If you supply goods to someone who does not pay for them, a Retention of Title (ROT) clause may protect you by retaining ownership of those goods until payment has been made. It can give you priority over the goods should the buyer fail to pay because of insolvency. A simple term will state the title of the goods is retained by you until payment in full has been made. If the goods supplied have been incorporated or otherwise attached to the buyer’s premises, you should consider a term which prohibits the buyer from doing so without your consent. An express term may also enable you to enter the premises to remove goods that have not been paid for without trespassing.
As with any other terms of business, a ROT clause should be clearly stated and accepted by the customer by signing an acknowledgement and acceptance when first agreeing to your terms. This means that to be enforceable it must be fully incorporated into the terms of the contract.
However, sometimes goods supplied can become mixed with others, some paid for and some not as in a running account. Difficulties can be encountered in trying to identify the original goods with other goods in which case more specific wording will be required. In certain circumstances, an ROT, which is essentially a right to trace, may not be possible where goods are altered by incorporation into a manufacturing process.
A ROT clause may not be appropriate in respect of all goods such as those that are perishable, pure consumables or for immediate conversion into something else.
ROT is a helpful means for suppliers to consider when protecting themselves from risk.
For further information on Retention of Title please contact our Litigation team.