Q&As

What makes a valid retention of title clause?

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Published on LexisPSL on 03/01/2019

The following Commercial Q&A provides comprehensive and up to date legal information covering:

  • What makes a valid retention of title clause?
  • Key elements of retention of title clauses

What makes a valid retention of title clause?

At its simplest, a retention of title clause is a provision in a contract which allows the seller to retain title to goods which they have delivered to a buyer until the buyer has paid for them in full or, where permitted to do so, sold them on to a third party (Aluminium Industrie Vaassen v Romalpa Aluminium).

A valid retention of title clause gives a seller priority over secured and unsecured creditors of the buyer if the buyer fails to pay for the goods where it is insolvent or for other reasons specified in the clause. The clause should give the seller the right to recover the goods from the buyer. As title will not have passed, the seller, once it has regained possession, will have the right to sell the goods to another buyer.

A retention of title clause must be incorporated into the agreement for it to be enforceable. See Practice Note: Standard terms and conditions—incorporation.

Key elements of retention of title clauses

Drafting considerations include

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