Retention of Title in Practice
A retention of title clause lets a supplier keep ownership of goods until they are paid for — a valuable protection, if it is set up and registered properly.
What you'll learn
- Understand what a retention of title clause does
- See why the clause alone may not be enough
- Recognise the role of registration in protecting it
- Appreciate the practical limits when goods change form
7 min read
What it does
A retention of title (ROT) clause provides that ownership of goods stays with the supplier until the buyer has paid for them in full. The aim is straightforward: if the buyer does not pay, the supplier may be able to reclaim the goods rather than rank as an unsecured creditor. For suppliers of goods on credit, a well-drafted ROT clause is a core risk-management tool in the terms of trade.
The clause is only the start
Having an ROT clause in your terms is necessary but often not sufficient. Under Australia's personal property securities regime, an ROT arrangement can amount to a security interest — and to be effective against third parties, such as the buyer's other creditors or an insolvency administrator, it generally needs to be registered correctly on the Personal Property Securities Register (PPSR). An unregistered interest can be defeated, leaving even a careful supplier exposed.
When goods change form or hands
ROT is most powerful for identifiable goods still in the buyer's possession. Complications arise where goods have been sold on, mixed with other items, or used in manufacturing so they are no longer identifiable. Tracing into proceeds or mixed products is possible in some circumstances but is legally and factually complex. Good records of what was supplied, when, and to whom make a real difference if you ever need to rely on the clause.
A note on advice
This is general information only and not legal advice. The drafting of an ROT clause, how the securities regime applies, and what registration is needed are technical and turn on detail; the rules can change over time. To protect your position, have your terms of trade and registrations reviewed. The free Merion tools can help with documents, and for unpaid accounts you can refer a debt to Merion.
Key takeaways
- An ROT clause keeps ownership with the supplier until payment.
- The clause may need PPSR registration to bind third parties.
- An unregistered interest can be defeated in insolvency.
- Tracing into sold-on or mixed goods is complex — keep good records.
Frequently asked questions
Is an ROT clause enough on its own?
Often not. To bind third parties, an ROT security interest generally needs to be registered on the PPSR. This is general information, not legal advice.
Can I reclaim goods that have been resold?
It is complex; tracing into proceeds or products may be possible in some cases but depends on the facts and the law.
Does ROT help if the buyer is insolvent?
A properly registered interest can improve your position, but an unregistered one may be defeated. Seek advice.
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