Retention of title clauses

Retention of title clauses

Retention of title clauses (sometimes called Romalpa clauses after a leading British case) have long been an important part of contracts for the sale of goods, particularly when possession of the goods being sold is transferred before the purchase price is paid. Properly drafted retention of title clauses ensure ownership of the goods remains in the seller until the purchase price (or sometimes some other condition) is paid in full. Such clauses are critical to assist a seller recover goods if a buyer becomes insolvent.

While these clauses have long formed part of the law in Australia, concerns about their continued effectiveness arose with the commencement of the Personal Property Securities Act 2009 (Cth) (the Act) and the subsequent introduction of the Personal Property Security Register (Register) in 2011.

Under the Act. a retention of title clause in a contract for the sale of goods (or a credit application) can constitute a security interest, but that interest should be registered on the Register in order to perfect the security.  If this is not done properly, sellers can lose priority in favour of third parties who have registered their interest, or in favour of a liquidator or trustee in bankruptcy.

If you sell goods on credit, you should ensure that your sale contract or credit application includes a properly drafted retention of title clause and that you have a process in place to perfect your security interest, or you could lose your priority in the event of the insolvency of one of your buyers.

The Ballantyne Law Group is able to assist in the drafting of practical and user friendly sale contracts, terms of trade and related documents.

Contact us today to discuss.

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