Sellers and suppliers of movable assets can deal with problems caused by poorly-paying customers through a retention of title clause. This clause makes it contractually possible to stipulate that ownership of a certain good does not transfer until the third party acquirer has paid the full price.
It is interesting to note that the new Law on Pledges has created a better legal framework for the retention of title clause, putting any creditor - assuming a retention of title clause has been included - in a stronger position.
1. What is a retention of title clause?
Retention of title is a security right by which it is contractually stipulated that ownership does not transfer until the third party acquirer has paid the agreed upon sum in full.
In other words, the buyer will only acquire the good following a payment in full.
However, the Law on Pledges does not define retention of title, but rather describes it.
2. How was retention of title previously regulated?
Retention of title was included in Article 101 of the Bankruptcy Law, stipulating that a retention of title clause for movable goods was enforceable in the event of the buyer's bankruptcy.
The following conditions had to be met:
• The clause had to be drawn up in writing at least at the time of delivery of the goods; • The goods had to be in possession of the buyer, in kind. They were not allowed to be of an immovable nature through incorporation nor could they be mixed with an other good.
3. How is retention of title currently regulated?
The Law on Pledges, which came into force on 1 January 2018, provides a legal basis in the Belgian Civil Code for the retention of title clause and abolishes Article 101 of the Bankruptcy law.
In Article 69 of the Law on Pledges it is stated that the seller who has stipulated a retention of title clause, has the right to recover their goods if the buyer fails to pay the price in full.
Furthermore, retention of title will apply regardless of the legal nature of the agreement in which it was included. This means that it no longer only applies to a sale agreement but also to other agreements.
For example, a retention of title can be stipulated by a contractor who, in addition to providing his services, also provides the building materials. Previously, this might have lead to discussions.
As a result, the retention of title no longer only applies to sales agreements but also to other agreements such as exchanges, donations, etc. Furthermore, retention of title can now be invoked in any form of concurrence of creditors, and no longer only in the event of bankruptcy. Retention of title can now also be invoked in the event of collective debt settlement or seizure.
The only condition is that the retention of title clause was stipulated in writing no later than at the time of delivery of the goods, for example in a quotation, in an order form or in a delivery note. It is advisable to include this clause in the General Sales Conditions found in these documents.
Note! The rules have become even more stringent for cases in which the buyer is a consumer. In that case, the buyer's consent must be evidenced by the document itself. The retention of title will only apply if the consumer has explicitly signed his consent to the clause.
4. Retention of title is stronger than before
Goods are no longer required to be present in kind, as they were previously required to be by Article 101 of the Bankruptcy Law.
- The right to subrogation is a first option, which allows a claim for payment of the price to replace the encumbered goods, if the goods have been resold, destroyed, damaged or have suffered loss of value. Retention of title will also apply to the fruits borne by the encumbered goods. This means that, for example, the seller of shares will also be able to exercise his retention of title on the dividends. Furthermore, retention of title will also continue to be relevant for goods that have been mixed or processed into new goods.
- If a new good is created by authorised processing, retention of title will apply to the newly created good, unless otherwise agreed. The Belgian Civil Code stipulates what should happen in case of processing that was not allowed. In the event that goods of third parties were used for such processing, and the separation of these goods is either impossible or not economically justifiable, the pledge shall encumber the newly created goods, if this is the most important or has the greatest value. In that case, the third party has a claim for enrichment without cause on the pledgee. This means that the value of the good must be set off against the value of the claim and that any capital gain must be repaid to the third party.
- The mixing of replaceable goods that have been encumbered in whole or in part with a lien by one or more pledgers shall not affect the pledge. If there are several pledgees, they may assert their right to lien on the mixed goods in proportion to their rights.
- Retention of title shall also remain in force if the encumbered goods have become of an immovable nature through incorporation. However, for this purpose, the retention of title is required to be registered in the Pledge Register. Movable property becomes immovable through incorporation by attaching it to immovable property, such as heating appliances, kitchen cabinets and kitchen appliances, sanitary wares such as a bath or a washing table, etc.
5. Registration of retention of title in the Pledge Register
Registration of a retention of title in the Pledge Register is an optional right.
If it is possible for the encumbered goods to become immovable through incorporation, the title retention must be registered in the Pledge Register.
After a retention of title on a certain good has been registered in the Pledge Register, it comes with priority over a mortgage creditor. The parliamentary documents show that this priority will even apply if the registration took place after the mortgage registration, provided that the registration takes place before the incorporation itself.
Needless to clarify that the registration of a title retention clause in the Pledge Register provides additional protection.
The registration however is not free of charge after which it must be renewed. Depending on the value of the goods to which the retention of title applies, the fee amounts from € 20 up to € 500.
6. In conclusion
The retention of title has finally received a legal framework following the introduction of the Law on Pledges, allowing more frequent and efficient use thereof.
In any case, it is advisable to include a retention of title clause in the General Sales Conditions of all your sales documents, such as quotations, order forms, building contracts, etc. ... and having this signed by the buyer if the latter is a consumer.
The retention of title provides addition protection provided it has been registered in the pledge register, but this registration is not mandatory and remains an optional right.
There is one exception to this rule: when an encumbered good can become immovable through incorporation. In that case, the retention of title must be registered in the Pledge Register. It would not be the first time a supplier of building materials is left with a non collectible debt claim after a contractor went bankrupt.
Do not forget that registration of the retention of title must be entirely or partially removed when the price of the goods has been paid, either in full or partially respectively.