Retention of title (eigendomsvoorbehoud) lets a seller remain the owner of goods it has already delivered until the buyer has paid. It is the single most effective protection a supplier has against a customer’s insolvency: where it is validly agreed, the goods do not fall into the bankrupt estate and you can reclaim them, instead of ranking as an ordinary creditor and receiving little or nothing.
Two conditions decide whether it works. The clause must have been validly agreed before or at delivery – a reference on an invoice sent afterwards is too late – and the goods must still be identifiable and not have become part of a new item. An extended clause covering all claims from the relationship with that buyer, rather than only the invoice for one specific delivery, is stronger and is permitted under Article 3:92 of the Dutch Civil Code.
What does ownership mean under Dutch law?
Ownership is the most comprehensive right a person can have in a good: others must respect it, and it is up to the owner to decide what happens to the good. An owner can, for example, transfer ownership to someone else by means of a purchase agreement.
For a valid transfer, a number of legal conditions must be met – among them a valid underlying agreement, delivery, and the seller’s authority to dispose of the good. The condition that actually transfers ownership is delivery of the good – for example by handing it over to the buyer – not payment of the purchase price, as is often assumed. In other words, the buyer becomes the owner at the moment of delivery, whether or not the price has been paid, unless you and the buyer have agreed otherwise in a retention of title clause.
What happens if you have not agreed retention of title?
Without a retention of title clause, the buyer becomes the owner on delivery even if it has not yet paid. The purchase agreement will set out the price and the payment term, but unlike delivery, payment is not a legal condition for the transfer of ownership. If the buyer then fails to pay, you cannot simply reclaim your goods.
The non-paying buyer can still rely on its acquired right of ownership, and you are expected to respect that right. You are left without your goods and without payment. The same applies if the buyer is willing to pay but becomes insolvent before payment takes place – a situation retention of title is designed to prevent.
How does retention of title protect you as a precaution?
Prevention is better than cure. You can agree with the buyer that ownership only passes once specific conditions – usually full payment – have been met. This is retention of title, regulated in Article 3:92 of the Dutch Civil Code: once agreed, you remain the owner of the goods until the buyer has paid the full price.
If the buyer fails to pay, or becomes insolvent before paying, you are entitled to reclaim the goods on the strength of the retention of title. If the buyer does not cooperate, you can enforce the claim through seizure and legal proceedings. Because you have remained the owner throughout, the goods do not fall into the buyer’s bankruptcy estate and can be reclaimed from it. Once the buyer has paid in full, ownership passes automatically.
What does retention of title look like in a hire-purchase sale?
One common transaction that relies on retention of title is hire purchase (huurkoop) – for example, buying a car in instalments, regulated in Article 7A:1576 of the Dutch Civil Code. Under hire purchase, the parties agree that ownership of the sold good transfers not by delivery alone, but only once the buyer has paid everything owed under the agreement.
Hire purchase does not, as a rule, cover immovable property and most registered goods; those categories are dealt with under separate rules, excluded from the hire-purchase regime by law. Its mandatory provisions aim to protect the buyer – for example of a car – against entering into a hire purchase too lightly, and to protect the seller against an unreasonably strong position on the part of the buyer.
How do you make a retention of title clause effective?
Record the clause in writing – either in the purchase agreement itself or in a separate agreement. In practice, it is usually included in the general terms and conditions, in which case the legal requirements for applying those terms and conditions must also be met. You can read more about this in our earlier article on general terms and conditions and what you need to know about them.
The retention of title clause itself must also be valid. This matters most once goods change hands, are combined with other materials, or the buyer runs into financial trouble, because that is exactly when you need to be able to point to specific goods as still being yours. For that, the following conditions must be met:
- the goods must be determinable or identifiable (described)
- the goods must not have been incorporated into a new item
- the goods must not have been converted into a new item
Do not formulate the clause too narrowly: the narrower it is, the more risk is left open. If you deliver several items to the same buyer, it is wise to provide that you remain the owner of all delivered items until the full purchase price has been paid, even if part of those items has already been paid for. The same applies to goods of the buyer that incorporate, or are made from, the goods you delivered – known as an extended retention of title.
Can the buyer sell goods that are still subject to retention of title?
Because the buyer is not yet the owner while retention of title applies, it is in principle not able to transfer ownership to someone else either. In practice, buyers regularly sell the goods on to third parties anyway. Depending on the relationship between buyer and seller, the buyer may in fact be authorised to do so, for instance within the buyer’s ordinary course of business.
In both cases, you cannot reclaim the goods from that third party. Your retention of title only binds the buyer, not the outside world. In addition, a third party acting in good faith can rely on Article 3:86 of the Civil Code, which protects a good-faith acquirer of movable property. That protection falls away only if the third party knew of the retention of title between you and the buyer, or knew that it is customary in the sector for such goods to be delivered subject to retention of title and that the buyer was in financial difficulty.
Frequently asked questions
Is retention of title the same as a pledge?
No. Retention of title keeps ownership of the goods with you as the seller until the buyer has paid. A pledge (pandrecht) is a security right over goods the buyer already owns, given to a creditor as collateral. The two can exist side by side, but they protect you in different ways.
Does retention of title still help you once the buyer has resold the goods?
Usually not. Once the goods have been resold to a third party acting in good faith, or processed into a new item, your retention of title generally no longer gives you a claim to those specific goods, for the reasons set out above.
What is the minimum a retention of title clause should cover?
At a minimum, describe the goods clearly enough to identify them, record the clause in writing before or at delivery, and make clear which claims it secures – ideally all claims arising from your relationship with that buyer, not only the invoice for one delivery.
In summary
- Retention of title lets you remain the owner of delivered goods until the buyer has paid in full, so the goods stay outside the buyer’s bankruptcy estate.
- The clause must be agreed in writing before or at delivery; it is usually included in your general terms and conditions.
- An extended clause covering the whole relationship with a buyer, not just one invoice, is permitted and offers stronger protection.
- Once goods are processed into a new item or sold in good faith to a third party, your retention of title generally no longer helps you.
- Draft the clause precisely: a narrowly formulated retention of title leaves risks open that a broader, well-drafted clause would have covered.
Retention of title is legally useful but technical to draft and rely on correctly. Our lawyers at Law & More are specialised in contract law and are happy to help you draft or assess a retention of title clause.
Unsure where you stand? Tell us about your situation. We will let you know your options within one working day.
How Law & More can help you with this is explained on our corporate lawyer page.
