Credit can be a red flag for many business owners. Why? When customers are given credit for goods, there is a risk they will never receive the payment for the goods. A Retention of Title clause can provide a business with protection if they are concerned about not receiving payment from the buyer. This type of clause will allow businesses to maintain the assets during times of buyer default and insolvency.
This post explains how the Retention of Title clauses work and why they are valuable for the business and the customer.
What is a retention of title clause?
A Retention of Title , also commonly known as a Romalpa Clause, enables the seller of goods to retain their ownership until the conditions of a purchase are met. Usually the condition imposed is payment.
Even though the title of the goods remaining with the seller, the goods are in fact, in the possession of the buyer. An example of this would be paying for something on credit. Paying on credit is not to be confused with paying for goods on credit card. You, as the customer, have the item purchased ready to take with you after the sale, but you have not actually paid for it. If you do not or cannot pay for the goods, the supplier may take action to reclaim the product since they continue to hold the title of ownership for the good/s.
Why is it important to have this clause?
As a business, this type of clause will protect you when your customer is unable to pay for the goods. Usually, you can reclaim them should they default on the conditions of purchase, protecting you from the risks associated with selling goods on credit. Without this title clause in place, a business would typically be unable to recover the goods or their value.
If you are a customer looking to purchase goods, even with a poor credit rating or limited secure finances, you are able to still purchase things. However, it is important to remember that you need to meet the payment conditions to complete the ownership of the item you’ve recently purchased.
How does a retention of title clause work?
To ensure a Retention of Title is legally enforceable, it first needs to be registered on the Personal Property Securities Register (PPSR). This is an online application that needs to be completed within a rather strict timeframe of the sale occurring.
A retention of title clause should always be professionally written by a lawyer, as the exact wording of the clause will determine the effectiveness of the contract.
So long that the Retention of Title clause is clearly defined in writing in advance of the sale, and the contract is signed by both parties, the Retention of Title clause claim can be made.
More information on retention of title clauses
If you are a business and would like to learn more about the Retention of Title clause and how it can help protect your business, you should seek the advice from one of our experienced lawyers. Our team are experts in this area and can advise you on the best course of action, including the drafting of a Retention of Title clause.