A „Retention of Title” or ROT clause is a provision often included in sales contracts, particularly in agreements for the sale of goods or real property. Including a retention of title clause in a contract is common in situations where there’s a risk of non-payment, insolvency, or financial instability on the part of the buyer. It is a risk mitigation strategy for sellers to secure their interest in their property until good and sufficient consideration has been received.
Under the provision for retention of title, which can usually be found in a payment clause, a seller of goods or real property seeks to retain ownership, even after delivery to the buyer, until certain conditions are met. In other words a ROT clause stipulates that although physical possession of and risk in the subject of the agreement passes to the buyer at the time of delivery, its title remains with the seller until the full payment of the purchase price.
In some cases, contracts may include provisions for enforcement, identification of goods, subsequent sales, registration requirements, risk and responsibility, and cross-border considerations within the ROT clause.
Sample Retention of Title Clause:
The ownership of the Goods supplied to the buyer shall remain with the Seller until payment in full for all the goods shall have been received by the seller in accordance with the terms of this contract or until such time as the Buyer sells the goods to its customers by way of bona-fide sale at full market value. If such payment is overdue in whole or in part, the seller may recover or resell the goods or any part of it and may enter upon the buyer’s premises for that purpose. Such payment shall become due immediately upon the commencement of any act or proceeding in which the buyer’s insolvency is involved.