A retention of title clause is often weaker than people think

A retention of title clause offers you less security than many entrepreneurs think. On paper, you retain ownership of a delivered product until the customer has paid, but in practice, the reservation often fails due to formal errors, unclear conditions, or because the nature of the product changes. Only when the clause has been validly stipulated, made known to your customer, and the item is still recognizably present, can you actually reclaim your products in the event of non-payment. Below, you can read where things go wrong and what you can do to strengthen your position.

What is a retention of title?

A retention of title is an agreement whereby you deliver a product, but ownership only passes to your customer after they have paid in full. Until that moment, you remain the legal owner. If the customer fails to pay, you can, in principle, reclaim your goods. Suppliers and wholesalers, in particular, routinely include such a clause in their agreements and general terms and conditions because it provides a stronger position than an ordinary claim: you are not at the back of the queue of creditors, but collect your own goods.

The regulation is laid down in Article 3:92 of the Dutch Civil Code. The idea is strong, but the law and practice impose so many requirements that the clause fails more often than entrepreneurs expect.

When is a retention of title valid?

Article 3:92 of the Dutch Civil Code does not permit a retention of title for every outstanding claim. In principle, the clause can only be stipulated for:

• the consideration for goods that you have supplied or are going to supply;
• activities that you perform for the customer under that same agreement (such as installation or assembly);
• claims for failure to perform those agreements, such as a contractual penalty or damages.

To the extent that you stipulate a retention of title for other claims, that part is deemed not to have been written. You therefore cannot simply link the reservation to all amounts the customer ever owes you. The structure is useful for suppliers and installers; beyond that, the possibilities are limited.

Note the difference with an extended or comprehensive retention of title

In practice, a broader (“extended” or “expanded”) retention of title clause is sometimes included, which also covers other outstanding invoices. The scope for this is limited. Therefore, always have such a clause legally reviewed so that you do not discover afterwards that it does not hold up precisely at the decisive moment.

The clause must be clear and applicable

A retention of title clause is only effective if it became part of the agreement at the right time. Ideally, it is clearly stated in a signed contract. In practice, it is often hidden in the general terms and conditions, and that need not be a problem in itself, provided those conditions are also validly applicable.

Two core requirements apply to this:

• Timely reference: you refer to your general terms and conditions no later than when concluding the agreement, not only on the invoice afterwards.
• Provision: you reasonably give your customer the opportunity to review the terms and conditions, for example by sending them along in advance or making them available digitally.

If things go wrong here, your customer may, under certain circumstances, invalidate the general terms and conditions, and you will no longer be able to invoke the retention of title despite the wording. Many entrepreneurs lose their protection on this point without realizing it.

The case must be recognizable and identifiable

A valid and clearly stated clause is not sufficient: in the event of non-payment, you must also be able to demonstrate exactly which goods are subject to the reservation and that you have delivered them. Should a dispute arise or the customer goes bankrupt, you will have to prove your ownership.

Practical measures that strengthen your position:

• Please state specifically which product was delivered on your invoice and packing slip, for example with the article number and type designation;
• have the customer sign for receipt, with a clear description of the goods;
• Keep your delivery receipts and correspondence organized.

With identical, interchangeable products, it can be difficult to prove that exactly your copy is still with the customer. Complete records are then the difference between having a recourse or not.

A retention of title can be extinguished prematurely

Even a well-drafted retention of title clause can lapse before the customer has paid. This happens primarily when the delivered product loses its independence or is incorporated into something else. Common situations:

• Accession: building materials such as bricks or roof tiles lose their independence as soon as they are incorporated into a building. The retention of title on the individual bricks then lapses.
• Creation of a new product or commingling: raw materials that are processed into a new product or are inextricably mixed with goods belonging to others may fall outside the scope of your reservation.
• Resale: if the customer resells the product to a third party, retrieving it often becomes factually and legally complicated.

Alternatives exist for these types of cases, such as a pledge or a well-considered combination of securities. Which solution is appropriate depends on your product and your industry.

What do you do with a non-paying customer?

If you wish to invoke your retention of title, proceed with care:

1. check whether the clause has been validly stipulated and whether your terms and conditions apply;
2. put the customer in default in writing and expressly invoke the retention of title;
3. gather your proof: agreement, terms and conditions, invoice, packing slip, and confirmation of receipt;
4. Do not reclaim the assets unilaterally and by force, but follow the proper procedure, especially in the event of (imminent) bankruptcy.

If the reservation yields insufficient results, the outstanding claim remains. A targeted collection procedure is then often the logical next step to recover your money.

Frequently asked questions about retention of title

Does a retention of title apply automatically?

No. You must expressly agree to this, for example in the contract or in validly applicable general terms and conditions. In the absence of an agreement, ownership generally passes upon delivery.

Is it sufficient to include the retention of title only on the invoice?

As a rule, no. A mention that only appears on the invoice often comes too late to become part of the agreement. Refer to your terms and conditions no later than when concluding the agreement and make them available in a timely manner.

Can I simply retrieve my products if the customer doesn't pay?

You may not remove the goods unilaterally or by force. Invoke the retention of title in writing and make clear agreements regarding their return. Furthermore, special rules apply in the event of bankruptcy; seek advice in a timely manner.

What happens to my retention of title in the event of the customer's bankruptcy?

A valid retention of title clause can give you a better position in bankruptcy than ordinary creditors, because it essentially concerns your own property. However, it depends on acting quickly and having conclusive evidence. The bankruptcy trustee will critically assess whether your reservation is legally valid and traceable.

What if the delivered product has been processed or resold?

In that case, your retention of title may have lapsed due to accession, creation of a new object, or resale. In those situations, additional security, such as a pledge, often offers greater protection. Tailor this to your specific product.

Have your terms and conditions reviewed

The retention of title clause is a useful and powerful construct, but certainly not absolute. A small difference in wording or in the way you handle your general terms and conditions determines whether you are left empty-handed in the event of non-payment or get your goods back.

Are you unsure whether your retention of title is valid, or would you like to have your terms and conditions reviewed? Our contract will assess your situation and strengthen your position where necessary.

Schedule a no-obligation intake and present your terms to us, so that your security is no longer subject to conditions.