What is Retention of Title Clause?

Full Definition

A retention of title clause (sometimes called a "Romalpa clause" after the 1976 case Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd that first tested the concept in English law) is a term in a contract for the sale of goods providing that ownership of the goods does not pass to the buyer on delivery, as would normally happen under the Sale of Goods Act 1979, but instead remains with the seller until the buyer has paid the price in full. The clause is widely used by manufacturers, wholesalers and building materials suppliers, particularly when supplying goods on credit terms to businesses whose ability to pay is uncertain, because it gives the seller a powerful practical remedy if the buyer becomes insolvent before paying: rather than joining the queue of unsecured creditors hoping for a small dividend in an insolvency, a seller with an effective retention of title clause can reclaim the physical goods themselves, provided they can still be identified and have not been consumed, resold, or irreversibly incorporated into something else. The simplest form, "simple" retention of title, covers unaltered goods still held by the buyer and is generally straightforward to enforce, but many suppliers seek more ambitious "all monies" clauses, under which title to a batch of goods is retained not just until that specific invoice is paid but until the buyer has cleared its entire outstanding account with the seller, and some try to extend the clause to proceeds of sale (a claim over money the buyer receives from reselling the goods to its own customers) or to manufactured products into which the original goods have been incorporated. Courts have historically been sceptical of these more ambitious extensions, particularly proceeds-of-sale and "all monies" claims over mixed or transformed goods, because such arrangements can look like an unregistered charge over the buyer's assets, and a charge that should have been registered at Companies House but was not is generally void against a liquidator or administrator, so sellers relying on an aggressive retention of title clause often find their claim significantly narrowed or defeated entirely once insolvency practitioners and the courts examine exactly what happened to the goods. For a retention of title claim to succeed in practice, the goods claimed must be clearly identifiable as the seller's (for example, by batch number, serial number or being kept physically separate from other stock), must not have been irreversibly mixed with other materials or incorporated into a finished product in a way that destroys their separate identity, and the seller must act quickly once it becomes aware of the buyer's insolvency, since administrators and liquidators are entitled to sell stock to fund the insolvency process unless a valid claim is asserted promptly. Suppliers who regularly trade on credit terms with construction, retail or manufacturing customers typically build a well-drafted retention of title clause into their standard terms and conditions, and some take the further step of registering their interest or notifying customers formally, precisely because a poorly drafted or vaguely worded clause is one of the most common reasons a seller ends up an unsecured creditor after all, despite believing they had protected their position.