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A retention of title clause (ROT clause) is commonly inserted into commercial contracts, but does that mean you can take back goods if you don’t get paid? Not always.

 

A basic ROT clause provides that, until full payment for the goods is received, they remain within the ownership of the seller. Often people think that a clause confirming this is sufficient to allow you to enter on the buyer’s premises and collect the goods. However, this is not always the case.

 

Along with the clause confirming the seller is retaining title to goods until full payment is received, a well drafted ROT clause should also include a right to enter the buyer’s premises and an obligation on the buyer to store the goods separately from others, clearly identify them as ‘your ‘ goods. It is also advisable to set out triggers for enforcement of the clause.

 

There are three main areas where I often come up against difficulties with the enforcement of ROT clauses, which could have been avoided.

 

In some sectors it is more common for the goods concerned to be attached to the fabric of the property before they have been fully paid for, for example with air conditioning systems or under floor heating. In such situations you must be careful before enforcing a ROT clause as the right to collect the goods is likely to be significantly restricted unless the clause has been drafted carefully.

 

Another common mistake is the failure to properly incorporate the clause within the contract. While special notice of the clause is not required, incorporation is vital. Seeking to send the terms, containing the clause, post the contract being made is insufficient. For any contract, proper procedures are essential, particularly with more purchasers seeking to enforce their own terms and a ‘battle of the forms’ ensuing.

 

Finally, care must be taken over insurance obligations. The general position is that risk passes at the same time as title to the goods. Therefore, if you wish to retain ownership until payment is received, you are likely to be responsible for insuring the goods until payment is received, unless your terms vary this.

 

The Court has tightened its view on the enforcement of ROT clauses and it is more important than ever to ensure they are properly drafted and advice is taken before any enforcement action is taken.

Added: 01 Mar 2016 12:09


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