Protecting your Business – Retention of Title
In the current climate, businesses should turn their thoughts to protecting their business against bad debts.
One powerful protection available to businesses is some form of security from their customers. For many businesses the common form of a quasi-security will be retention of title clause (“ROT”) in the sale or supply contract. A business may have an ROT clause in its standard terms of business. If a business does not, then it should seriously consider reviewing its standard terms of business.
A ROT clause will basically provide that goods do not pass to the buyer until they have been paid for. Therefore, the seller can re-claim the goods if the full price if not paid.
Also, because the title to the goods does not pass, until full payment is received, the business’s goods will not be included in any security given by the customer to anyone else.
The seller can further extend the standard ROT clause mentioned above for additional protection such as a right that:-
- reserves title until the customer has paid for all goods supplied and not just those covered by that specific sale agreement; or
- extends the business’ rights to actual proceeds of sale of goods even if the goods have been sold by the buyer; or
- attempts to retain the business’ rights over the goods even if they have been mixed and incorporated into other goods.
Additionally, for the ROT clause to properly works for you there are other important matters which will need to be included e.g. the ability to enter premises of the customer to reclaim the goods.
Care needs to be taken to ensure that the ROT clause is properly drafted to protect your particular business whether in a contract for supply or in your standard terms of business. If you do not have such a protection then you could be missing out in protecting your business.
Your business may simply use your standard terms of business upon which you agree to supply goods to your customer. It is vital that your terms of business are incorporated into the contract to enable you to rely on them.
Finally, it is important that you seek legal advice and do not fall into the trap of the ROT clause becoming invalid in case of your customer’s insolvency.
April 2009
This article gives a general overview only and the legal position at the time of writing this article. It cannot be relied upon in any particular case. Specific legal advice must always be considered to include consideration as to whether the legal position contained in this article has changed since going to print. For further information and advice, please contact Nita King or Marianne Johns on 01793 527141 or alternatively by email on Nita.King@lemon-co.co.uk or Marianne.Johns@lemon-co.co.uk.
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In the current climate, businesses should turn their thoughts to protecting their business against bad debts....</p>
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