Retention of title in construction
Typically on construction projects, goods, materials or plant are not paid for until after they have been delivered to site. Even then, the contractual chain may mean that the client pays the main contractor at agreed intervals, and then the main contractor pays sub-contractors and so on.
This can put the supplier at risk, if the buyer (typically the contractor) defaults or becomes insolvent before payment is received. If the contractor has delivered the items and the client has received them in good faith then ownership may be disputed even if the supplier has not been paid in full.
A ‘retention of title’ clause (‘RoT, ‘Romalpa clause’ or ‘reservation of title clause’) allows a supplier to retain ownership of until specified conditions have been met, for example, until payment has been made. This is permitted under the Sale of Goods Act or the Supply of Goods and Services Act which provide that title passes from the seller to the buyer when the parties intend it to, which can be, for example; upon delivery, upon payment or upon use. This can override the general principle that title passes on delivery and can give an unpaid supplier’s title priority over the client’s.
Such clauses need to be clearly worded, it must be established that they prevail over other documentation (such as purchase orders), and they must be drawn to the attention of the contractor and client by the supplier. If the contractor becomes insolvent, or seems likely to become insolvent, the supplier should act quickly to establish their case, giving notice of retention of title, and making clear that payment has not been made.
However, even when properly prepared, retention of tile clauses can be difficult to enforce, as generally, title passes to the client once items are incorporated into the development anyway, irrespective of whether payment has been made, and it can be difficult to establish whether payment has been made, as the client may make stage payments rather than paying in total for specific items.
Other measures a supplier might take to reduce their risk include:
- Checking the financial status of the contractor to assess the likelihood of insolvency before accepting an order.
- Arranging for items to be marked and stored separately to make clear title remains with the supplier.
- Entering into a direct contract with the client.
- Seeking advance payment.
Advance payment can be secured with an advance payment bond and the client’s title established with a vesting certificate, although vesting certificates can be similarly difficult to enforce.
NB: The term ‘Romalpa clause’ refers to the case of Aluminium Industrie Vaassen BV v Romalpa Aluminium (1976) which established the principle of extended reservation of title.
[edit] Find out more
[edit] Related articles on Designing Buildings Wiki
- Advance payment bond.
- Materials on site.
- Off site goods and materials.
- Off-site goods and materials - legal issues.
- Owner.
- Parent company guarantee.
- Retention.
- Vesting certificate.
[edit] External references
- BIS, Retention of title.
Featured articles and news
Registered building inspectors
Building types and conflicts of interest updates explaineed.
Engineering services still struggle with labour shortages
According to latest quarterly services survey of the sector.
Infrastructure that connect the physical and digital domains.
Harnessing robotics and AI in challenging environments
The key to nuclear decommissioning and fusion engineering.
BSRIA announces Lisa Ashworth as new CEO
Tasked with furthering BSRIA’s impressive growth ambitions.
Public buildings get half a million energy efficiency boost
£557 million to switch to cleaner heating and save on energy.
CIOB launches pre-election manifesto
Outlining potential future policies for the next government.
Grenfell Tower Inquiry announcement
Phase 2 hearings come to a close and the final report due in September.
Progress from Parts L, F and O: A whitepaper, one year on.
A replicated study to understand the opinion of practitioners.
ECA announces new president 2024
Electrical engineer and business leader Stuart Smith.
A distinct type of countryside that should be celebrated.
Should Part O be extended to existing buildings?
EAC brands heatwave adaptation a missed opportunity.
Definition of Statutory in workplace and facilities management
Established by IWFM, BESA, CIBSE and BSRIA.
Tackling the transition from traditional heating systems
59% lack the necessary information and confidence to switch.
The general election and the construction industry
As PM, Rishi Sunak announces July 4 date for an election.
Eco apprenticeships continue help grow green workforce
A year after being recognised at the King's coronation.