Retention of title clauses are easier to avoid than enforce, but if you supply large quantities of tangible goods and give large amounts of uninsured credit then you need;

(a)       To have a very good and workable retention of title clause; and

(b)       To ensure its incorporation into your commercial agreements (see my blog ‘Incorporating Standard Terms and Conditions’)

A retention of title or ‘ROT’ clause prevents title passing to your customer, even after goods have been supplied; so if you are not paid you can take back possession of your goods.  In the absence of such a clause, title is usually deemed to pass on delivery.

The ROT clause included in your standard terms and conditions should be drafted in a manner that is consistent with your business processes.

To enforce an ROT clause, you need to be able to identify the goods that have been supplied and prove that the price for those goods remains unpaid.

Anybody hoping to enforce an ROT clause should further introduce business processes, whereby their products are packaged in such a way that they are identified by batch number and that batch number is further referred to within a delivery note and invoices make reference to both the relevant batch numbers and delivery notes.  With such a system, it will be easy to identify the goods that still belong to you when your customer fails to pay.  Most liquidators and/or administrators will insist upon such information being clearly given.

If you sell your goods to a wholesaler or retailer and/or distributor and that distributor sells them on without paying you, then an honest purchaser of those goods, without notice of your ROT clause, will buy free from your claim for title.

If you are selling to a designated purchaser acting on behalf of a large company, then it is also good practice to send details of your ROT clause to the end consumer.

A ROT clause will not work where your goods have become attached to the land.

A ROT clause will not work if the goods have become incorporated into another item; so if your sheet metal has been fabricated and incorporated into a machine title will have passed.

Many large leases are now coming to an end without renewal, and the prospect of significant disputes relating to dilapidations between landlords and tenants is increasing.  Dealing with dilapidations is not rocket science, the law is pretty simple.  Set out below are some of the things that you need to consider.

Almost inevitably, in the event of a dilapidations claim, there will be an express lease.  The terms of that lease will specify the condition in which the tenant must surrender his property to a landlord.  Specific reference may be made within the lease to a schedule of condition recorded by a surveyor when it was first signed.  Alternatively, the tenant may be required to bring the property back to a specified condition in the lease, often described as a “good” and / or “reasonable” condition.

Lawyers are often consulted by tenants seeking to avoid their obligations and / or by landlords seeking to enforce those obligations.  Here are some of the common pitfalls.

If a landlord forfeits the lease (which often happens if he takes possession of the property during the term), the covenants within the lease are frequently discharged and that includes the tenant’s covenants to repair.  Tenants seeking to avoid their obligations will often seek to allege forfeiture; landlords need to be careful to avoid accidental and / or unintended forfeiture.

To successfully enforce a dilapidations claim, a landlord must ensure that he follows the procedure set out within the lease, as failure to do so may frustrate his claim.

A tenant should consult his lease before it comes to an end.  Most tenants can attend to the reparation of any dilapidations, less expensively than a landlord will.  If there is a possibility of a substantial dilapidations claim, it would be wise for a tenant to have the premises prepared prior to inspection by the landlord’s representative.

A landlord cannot claim more for the cost of repair of dilapidations than the dilapidations themselves cause the premises to diminish in value.

By way of example, consider the position of an old warehouse situated on derelict land suitable for redevelopment.  The warehouse requires a new roof but the cost of the new roof will not significantly appreciate the value of the property because of its development potential.  In those circumstances, the tenant would be absolved from the obligation to place a new roof on the building.

Most commercial landlords are extremely familiar with the law pertaining to dilapidations.  Tenants of large premises should consult their leases and their lawyers at an early stage, prior to the end of the lease, if they do not intend to renew and should develop strategies to limit their obligations before the lease comes to an end.

If you are in business, I urge you to take ten minutes to read on.  At the end of this note, you will know:-

(a)       how well drafted standard terms can limit commercial risks to your business;

(b)       which key standard terms you require;

I have been acting for commercial clients for twenty years.  The businesses I have represented that have paid attention to this issue have saved millions of pounds and the businesses that have not have been cost a similar amount.

Let’s be clear, standard terms are ‘standard’, not a perfect reflection of your trading relations.  However, if you get the important clauses right, they will have an enormous effect in reducing your firm’s contingent liabilities.

I have drafted the national and international terms of business for public limited companies and have even drafted terms of business for the sale of specialist steel to nuclear power stations.  Understandably, everyone took a great deal of care in drafting those arrangements, but the basics remain the same and your business can benefit from those basic safeguards, simply and easily.

1.         Limit your promises

Legislation imposes contractual promises on a seller.  We know many of them well.  “Goods will be fit for the purpose and of satisfactory quality”, “services will be supplied with reasonable skill and care”.  In the absence of agreement deliveries will be made “within a reasonable time”.

The first thing your standard terms will do is limit these promises insofar as it is lawful to do so.

We all want to give a good service to our customers and clients but when things go wrong and a dispute evolves, limiting your contractual obligations can save you money.

2.         Limit claims against you

Good standard terms limit the type of claim that can be bought.  They limit the remedies available to your customers, for example, they may say that claims must be limited to the supply of replacement goods or that any claim is limited to a certain figure and / or to the contract price.

3.         Deadlines

Standard terms should also impose strict limits on the timeframes within which claims may be bought and / or provide for deemed acceptance of the goods.

4.         Set Of

An effective “no set off clause” can prevent your customer refusing to pay whilst a dispute is resolved and in these tough economic times can prove to be extremely useful.

5.         Delivery

Your standard terms should say that delivery times are estimates only, because if things go wrong, claims for late delivery can often be avoided.

6.         Retention of Title

Retention of title clauses are lengthy and require special processes if they are to be enforced successfully.  If you are a business supplying significant quantities of tangible goods and giving large volumes of uninsured credit, I strongly recommend you read my blog regarding retention of title clauses.

7.         Jurisdiction

Many of you will be businesses selling solely to the UK market and not making international supplies.  Even if this is the case, do not forget that when it comes to the law, Scotland is a different world, and in any event, you should ensure that any dispute that arises is resolved on your home territory.

8.         Superfluous language

Many sets of standard terms are printed minutely and contain a vast array of standard clauses that may or may not ever be relevant to your business.  It is recommended, insofar as possible, to avoid such terms.

The golden rule is to keep it simple and recognise that these are standard terms, designed to effectively limit your promises and liability in regard to day to day business, rather than to provide for every conceivable situation.

Get your terms incorporated

Do not forget to ensure that your standard terms are incorporated, see my blog.