Building Materials - who owns what and when?

Thursday 16th April 2009

Introduction

A contract for the supply of materials will usually contain at least a basic retention of title clause, with the supplier retaining both the legal and beneficial ownership of materials.

In these times, there may be a drive to supplement that provision with further clauses containing:

• a right for the supplier to enter the customer's premises in order to repossess the materials (to prevent trespassing);
• an obligation for the customer to:
• store materials separately;
• to mark them as the supplier's property; and
• to allow the supplier access to the customer's premises to verify that this has been completed.
• a list of insolvency related events that will trigger the supplier's right to demand payment (if not already due) and repossess materials.
  

Suppliers and customers should be alive to:

• An 'all monies clause' whereby ownership of the materials is retained until all monies owed are repaid, regardless of how the debt arose. These clauses appear attractive to suppliers if there is a continuing supply of materials but it is often difficult to demonstrate which materials relate to a particular invoice. An 'all monies' clause can work if all of the goods were supplied at the same time or by a sole supplier of the particular materials. However, in the majority of cases an 'all monies' clause will fail (as an unregistered floating charge).
• A proceeds of sale clause could allow the supplier to assert rights against the proceeds of sale to satisfy the purchase price of the materials. However, the legal complexities mean it is extremely difficult to make such a clause work.
• A mixed goods clause could enable a supplier to attempt to assert rights over materials used in the building / manufacturing process. As long as the materials remain identifiable and can be removed without substantial damage to either the materials themselves or other items attached to them, the clause may be effective and enforceable. Goods that cannot be separated will not be recoverable.
  

In short, a clause labelled 'retention of title' clause can make contracting parties think that they know their position but the effect of the clause will depend on the materials and their use and the devil of the detailed drafting. The clauses can be effective but should only be used adjacent to a proper credit control system and not as a substitute, including reducing the period of credit, taking alternative forms of security and obtaining credit insurance.

Ashfords LLP is regulated by the Solicitors Regulation Authority. The information in this note is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.