Retention of title clauses and ownership of materials

On a construction project deciding which party owns which goods and materials at any given time can be a difficult task. In the present economic climate with insolvency as an ever present threat, ownership of goods and materials has become more of an issue. Retention of title clauses ("ROT clauses") may afford an element of protection to those parties who supply goods and materials.

Where goods have been supplied under a contract of sale, the Sale of Goods Act states that title to the goods passes from the seller to the buyer when the parties intend it to pass. In general this will be, if there are no indications to the contrary, at the point of delivery.

Many construction contracts, however, are for the supply and fitting of goods, rather than contracts of sale, and these contracts are usually subject to the Supply of Goods and Services Act. Unless there are express provisions to the contrary, ownership of the goods will remain with the supplier until the goods are incorporated into the works when title will pass to the owner of the property in which they are incorporated.

It is common for a contractor, sub-contractor or supplier to include an ROT clause in its terms and conditions. ROT clauses are based on the principle that a buyer cannot transfer the title to goods and materials which it does not have. ROT clauses amend the statutory position described above by leaving ownership with the seller until full payment has been made for the goods.

Be aware though that in order for an ROT clause to be effective it needs to be carefully drafted and the goods and materials subject to the clause need to be easily identifiable or separate from other goods. ROT clauses which are only detailed on an invoice and not in the contract are likely to be ineffective against a buyer, as by the time of the invoice it is usually too late to add new contract terms.

Furthermore, ROT clauses generally only bind the contracting parties and although useful for protecting a supplier's position, even the best drafted ROT clauses may be of no effect if the buyer has annexed the goods to the land, used the goods in a manufacturing process, or sold the goods on to a third party, who purchased in good faith.

Therefore ROT clauses should be seen as another layer of protection for a supplier but should not be relied on as complete protection against a buyer who becomes insolvent or refuses to pay for the goods supplied.

If anyone has any queries arising from this article I can be contacted at s.homer@ashfords.co.uk