Retention of Title – Do’s and Don’ts

A slower economy, increased payment periods and rising corporate insolvency have all contributed to the more frequent inclusion of retention of title (or “Romalpa”) clauses in commercial supply agreements.  However, although such provisions can offer some limited assistance if your customer fails to pay, increasing judicial scrutiny has created a complex body of fast moving case law.

To help ensure you have the benefit of the protection you believe you are entitled to when it matters most, make sure you follow this guide:

DO:  Ensure the clause has been effectively incorporated into the contract with your customer.  If it is not part of the contract, you cannot later rely on it.

DON’T:  Leave your clause unchanged for extended periods of time.  This is a fast changing area of commercial law and retention of title arrangements must be reviewed on an ongoing basis alongside the rest of you commercial contracts.

DO:  Take professional advice about the clause, its incorporation and its enforcement.

DON’T:  Assume the clause will help in every situation.  For example, you may not want perishable goods returned.

DO:  Make sure your customer is aware of its obligations and complies with them.  The clause may be ineffective if it is inconsistent with your overall trading relationship.

DON’T:  Rely on the retention of title clause as a complete solution.  It is one of a number of measures a supplier should be using and is no substitute for sensible credit control and specialist insurance.

DO:  Ensure the clause is easy to read and understand.  Several short separate paragraphs are better than a few large ones.

DON’T: Delay in acting.  In the event of insolvency, notify the administrator quickly of your claim and be ready to supply sufficient supporting evidence.

For more information about retention of title and commercial contracts and how they could benefit your business, contact the Tolhurst Fisher commercial team.