Contract Countdown Series: Most Dangerous Risks #9
#9 – No Retention of Title (ROT) Clause
We continue our Contract Countdown highlighting the clauses/areas we see in practice that cause grief all round. This week at number 9 on our list is one is an easy fix but, if it’s not in your Terms and Conditions, it could cost you dearly.
A retention of title (ROT) clause in your Terms and Conditions means that title in your goods does not pass to a buyer until you receive payment. This results in a buyer having possession and control over your goods but not the ownership. Before the Personal Property Securities Act 2009 (“the PPSA”) became law, it meant that a seller with an ROT clause could claim the goods sold back from the buyer. Now that is no longer the case – the PPSA provides that in most circumstances, possession of the goods will now trump title unless you have a registration. If there is an insolvency event (your Customer goes broke), you may lose your goods and any chance of receiving payment even if they are sold by the administrator or liquidator.
The PPSA provides that a ROT is a security interest that can be registered on the PPSR. The effect of that registration is that your interest in the goods sold can be secured until payment has been made. Having no retention of title clause means that title in the goods will pass to your Customer on delivery and you no longer have any interest in the goods capable of being registered on the PPSA. All you are left with is a contractual right to receive payments for the goods. Any PPSA registration, particularly if you have registered as a PMSI, may then fail.
To be clear (and we appreciate these concepts can be hard to follow) just remember – have an ROT clause in your Terms, make sure your Customer agree to that clause in writing and finally, register your security interest on the PPSR. If you’re not sure whether you have an ROT clause or whether your PPSA clause is effective, get a free LEDcheck on your ROT and PPSA clause here.
And of course, stay tuned for #8 in our Contract Countdown…
For more information, contact Ledlin Lawyers:-