Retention of title: keeping your goods yours until you are paid

A retention of title clause, often called a romalpa clause, says the goods you supply stay yours until your customer has paid for them. In New Zealand the law treats that clause as a security interest. It protects you best when it is registered on the PPSR, and registered in time.

What is a romalpa clause?

It is the clause in your terms of trade that covers who owns the goods or materials until payment is made. You will see it called retention of title, reservation of title, a title clause, or simply ownership of goods. Romalpa is the same thing, named after an English court case from the 1970s. They all say one thing: the goods stay yours, even after you have delivered them, until you are paid in full.

It works the way car finance does. The finance company has the ability to repossess the vehicle, and ownership is not transferred until the vehicle has been paid for. Your clause puts you in the same position over the goods you supply on credit.

Without the clause, ownership can pass on delivery

Under the Contract and Commercial Law Act 2017, ownership of goods passes when the buyer and seller intend it to. Where your terms say nothing, the fallback rules can pass ownership to your customer when the contract is made, or once the goods are set aside for them or handed over, even though payment comes later.

Section 147 of the Act lets a seller keep the right to deal with the goods until conditions are met, such as being paid, and ownership then stays with the seller despite delivery. That is the footing for a retention of title clause. So “ours until they pay” is something your terms have to say, in writing, and your customer has to have accepted.

Ask us about your ownership clause

Why the clause needs a PPSR registration

The Personal Property Securities Act 1999 looks at what a clause does rather than what it is called. A clause that keeps ownership until you are paid is security for payment, so the Act treats it as a security interest (sections 17 and 24). For it to count against anyone other than your customer, your customer needs to have signed or accepted terms that describe the goods (section 36). The Act gives its own example: a retention of title clause printed only on an unsigned invoice binds the customer, and nobody else.

Then comes registration. Your clause states your ownership over the goods. To recover them, you still need the PPSR registration alongside that ownership. As the register itself puts it, the terms of a customer agreement, retention of title included, “do not guarantee your rights” if a customer defaults. The clause is step one. Registering it is step two. We cover how in how to register on the PPSR.

Register in time, and you can rank ahead of the bank

Supplying goods on credit and registering your interest in those goods can put you ahead of a bank that registered security over your customer first. That is called a purchase money security interest, and it depends on timing: for stock your customer will resell, register before they take possession; for other goods, within 10 working days of delivery. The clock runs from delivery. The full rule is in the PPSR explained.

If you never registered, your clause still counts against a liquidator, and it puts you ahead of the unsecured creditors. Where you lose is to anyone who did register security over the same goods. Most businesses that borrow have a bank holding security over everything they own, so in practice the bank usually comes first, and what is left for you can be little or nothing.

See how we can help with your terms and registrations

Goods your customer has already sold on

If you supply stock that your customer sells in the ordinary course of their business, their buyer takes the goods free of your claim, unless the buyer knows the sale breaches your agreement (section 53). Your interest can carry over to what your customer was paid for them, if that money can still be traced. That is why the timing rule for stock asks you to register before your customer takes possession.

Goods that are fitted or built in

Recovering goods works while they can still be identified and lifted out as they were supplied. Stock on the shelves, parts not yet fitted, and your scaffolding, gear and equipment on site all fit that description. Glass, windows, pipes, wiring and a lot of the materials tradies use are built in almost immediately, and once they are part of the site, your security interest in them drops off. For that kind of work, the protection that holds is a general security agreement, alongside deposits and progress payments. We explain what you can take back, and what you can’t, in the PPSR explained.

When it is your gear on their site

When you have goods or materials on a customer’s site that you haven’t been paid for, and they are yours, losing them is devastating. It might be a toolbox, a container load of air conditioning units, or your scaffolding on a site. Whatever it is, it adds stress to a situation that is already hard enough, at the exact moment you are also working out what you are owed.

So we ask three things. First, does your ownership sit on a registration as well as in your terms? Second, can you show which goods are yours? Branding, a serial number or some other unique identifier, the way hire companies mark their gear, makes that far easier when somebody else is deciding what belongs to whom.

Third, how long do your goods sit on site before they are fitted? Windows delivered to a site might be installed within a week. If the site goes into liquidation in those few days, the uninstalled windows can be caught up with everything else on it. It is unlikely to happen. You just want to know that it could, and to have registered before it does.

And when a customer does fail, the temptation is to go and get your gear. We understand it completely, and we would hate for it to ever backfire on you. Going onto a site, or taking goods while a liquidator or receiver is in control, can create a dispute of its own. The stronger move is to put your claim to them straight away, with your signed terms, your registration and your delivery records. The work you did before the job started is what gets your goods back.

What you can put in place now

• An ownership clause your customer has accepted. In your terms of trade, signed or clearly agreed before the work starts, describing the goods it covers.
• A registration, made in time. When you are supplying goods that will sit on a site for a while, consider registering on the PPSR, even for customers who are really great payers.
• Goods you can identify. Mark them where you can, and keep delivery records that show what went where, and when.
• Less credit on goods that get built in. The best protection is to reduce the amount of credit you provide and shorten the time until you are paid: deposits, progress payments, and a general security agreement where the job warrants it.
• A plan for the day a customer fails. Contact the liquidator or receiver straight away to say you claim the goods. What to do next is in when your customer goes into liquidation.

No clause guarantees you get paid or get your goods back. A good one, registered, puts you in a far stronger position if it comes to it. This page is education and commercial insight from our own research and experience, not legal advice. Do your own research, and get legal advice for your own situation.