Retention of Title Clause: An Explainer

Seeking to protect yourself in a contract for the sale of goods? Concerned that a buyer may default on their payments? Consider utilising a retention of title to ensure you can protect your rights and maintain your assets in cases of default and insolvency. Learn about retention of title clauses, their purposes and their benefits here.

What Is a Retention of Title Clause?

Also known as a Romalpa Clause, this clause enables the seller to retain title until a predetermined condition. The retaining of title, means that the seller retains ‘ownership’ of the goods until the condition is met. The predetermined condition is usually the payment of the purchase price for the goods. However, despite the title being retained with the seller, the goods will be transferred to the buyer’s possession.

What Are the Benefits of a Retention of Title Clause?

The chief benefit of this clause is that it will protect you where the buyer is unable to pay for the goods. This means that if your client becomes insolvent or bankrupt, you generally can reacquire the goods in question. Without a retention of title clause, you would become an unsecured party and unable to recover the goods or their value. Retention of title clauses also benefit the buyers of your goods. Buyers with a poor credit rating or otherwise insecure finances, are able to purchase goods as sellers are protected from the risks of default. Thus, retention of title clauses provide benefits to both parties in the transaction.

Can I Gain Additional Protection?

While a good mechanism, you may want more than a retention of title clause to protect yourself from default. The Personal Property Security Act 2009 (Cth) (‘PPSA’) provides a way for you to strengthen the legal protections available to you in the sale of goods. By following PPSA rules you are able to assert a security interest over your goods in cases of default. Furthermore, registering your interest in compliance with the PPSA, can provides protection against third parties. Furthermore a registered interest, ensures significant protection in cases of liquidation.

Keep in mind, that you will not always be able to register you interest, or retention of title interest, in line with the PPSA’s provision. In cases of clients who you have a high degree of trust and reliability, registering your interest may place additional obligations that are not necessary for your protection. Furthermore, if the goods are not worth much, a retention of title clause may be sufficient for your needs.

Conclusion

Thus, a retention of title clause can provide you with protection if you are concerned about not receiving payment. For additional protection consider registering your interest in line with PPSA provisions. To ensure you have the best legal protection possible, consult a contract lawyer for relevant legal advice.

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