Commercial Contracts: Retention of Title Clauses

Goods sold in the UK are subject to the Sale of Goods Act 1979 (the Act).

Occasionally, circumstances dictate that the seller retains his rights to the goods he is selling – a term in the commercial sale contract provides that he retains the title of the property/goods and remains the legal owner. This situation is governed by sections 17 and 19 of the Act. The reason is that the seller reserves his right to recover his own goods until they are paid for.

It is an essential requirement of the Act that the goods remain identifiable.

Where retaining title to goods, one should consider the following clauses:

  1. A ‘tracing clause’ allows the seller to trace into the proceeds of sale received by the seller. The buyer must have paid the money into a separate bank account in order for the money to remain identifiable.
  2. An ‘insurance clause’ obliges the buyer to insure the goods and will help the seller if the goods are damaged or destroyed. It is useful to provide that the buyer would hold the proceeds of any insurance claim on trust for the seller, as this will help the seller if the buyer becomes insolvent.
  3. A clause allowing the seller to enter, seize and resell the goods. This gives the seller a right to physically enter the buyer’s premises and actually retain the goods. Without this, the retention of title clause would be of little value for the seller.
  4. A clause reserving the legal title in the goods. It is essential that the retention of title clause clearly states that the seller reserves legal title in the goods.
  5. A deadline clause. If the goods are perishable, then a deadline may need to be set before the goods perish, so that the seller has time to sell the goods elsewhere.
  6. The end of the retention of title clause. Obviously, the retention of title should come to an end eventually. When the money is fully paid or the stipulated act completed, the retention of title should come to an end and the title to the goods should be transferred to the buyer.

A seller should be vigilant and should seek a potential buyer who is more likely to pay. Practical steps can be taken, such as credit checks, debt factoring, credit risk insurance, and ensure that the contract contains clauses which allow for the payment of interest where the buyer makes a late payment.

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