Under Finnish law, retention of title can be based on either a separate condition in a sales agreement or a specific agreement referred to in the Hire-Purchase Act.

A 'condition concerning retention of title' refers to a condition under which ownership of the object of purchase remains with the seller until the purchase price has been paid in full. A retention of title clause may be used to ensure the seller's rights in circumstances where the seller has no other form of security against the buyer's insolvency. However, the retention of title clause should be drafted and implemented carefully to ensure that it remains effective in the event of the buyer's bankruptcy.

Retention of title is not valid against the buyer's bankruptcy estate or other bankruptcy creditors if:

  • the retention of title was not agreed before possession of the object of purchase is transferred to the buyer;
  • the buyer is not prohibited from assigning the object of purchase to a third party; or
  • the buyer is not prohibited from attaching the object of purchase to other assets or otherwise disposing of it as the owner.

If the retention of title is not valid, the object of purchase is as much a part of the bankrupt estate as the rest of the buyer's property.

In international trade, the validity of retention, and whether it is legally binding vis-à-vis other bankruptcy creditors, is in principle interpreted in accordance with the law of the country in which the property is located. The validity of the retention of title follows the rules set out in the Bankruptcy Act and Finnish law in general.


According to Chapter 5(6) of the Bankruptcy Act, assets in the possession of the debtor which belong to a third party are not assets of the bankrupt estate if they can be detached from the debtor's assets. Section 6 also applies to moveable assets that remain subject to a right based on a term concerning the retention of title or repossession by the assignor (seller). This means that the condition is also binding towards the bankruptcy estate.

Pursuant to Chapter 5(7)(2) of the act, the main prerequisites for validity of retention of title relate to:

  • whether the term concerning the retention of title or repossession was agreed on or before the debtor's taking possession of the assets based on the assignment (which should be verified); and
  • whether the debtor has been prohibited from assigning assets to a third party, attaching them to other assets or otherwise disposing of them as the owner.

Retention of title may be invoked against the buyer's bankrupt estate only in connection with the unpaid purchase price of the object of purchase relevant to the withdrawal claim. As such, the seller cannot effectively claim withdrawal of the object of purchase from the bankrupt estate if the purchase price has been paid in full but other payments or business relationship obligations not related to the sale of the object of purchase, subject to the retention of title, have not been effected.

Where applicable, before the purchase price has been paid, registration of ownership should be avoided, as a third party – to whom the buyer or buyer's bankruptcy estate may sell the object of purchase – can enjoy protection against loss of title. The buyer's bankruptcy estate is unlikely to enjoy the same benefits as a bona fide third party, because the estate may be deemed to possess sufficient knowledge regarding the retention of title.

In connection with the requirement to contractually prohibit the attachment of the object of purchase or governance as an owner, the mere possibility to do so is sufficient. If respective prohibitions are not in place, the debtor need not attach the object of purchase or otherwise govern it as an owner to render the retention of title invalid.

Agreement conditions

Often in a dispute concerning retention of title, whether the retention of title clause has been validly incorporated into the agreement between buyer and seller is key. The condition concerning the retention of title must be included in the agreement for it to be effective. Retention of title cannot be imposed unilaterally. Retention of title clauses commonly fail when a supplier seeks to rely on written terms and conditions printed on an invoice or delivery note, where no written contract existed before the goods were supplied. The condition should be agreed explicitly when the parties agree all other terms and conditions.

On the other hand, the condition can be agreed after signing the main contract, as long as it is done before possession of the object of purchase has been transferred to the buyer. It is unclear whether and under which conditions a simple reference to general terms and conditions in the contract leads to a binding retention of title clause. Retention of title binding on the buyer cannot be concluded by reference to general terms of business if the buyer has had no access to the contract terms and conditions before signing it.

Right of subrogation

Although retention of title binds the buyer's bankruptcy creditors, the bankruptcy estate may prevent termination of trade by using the right of subrogation. The special provision on the bankruptcy estate's right of subrogation supplements the general rule in Chapter 3(8) of the Bankruptcy Act concerning the right of the bankruptcy estate to commit to a contract entered into by the debtor. According to this provision, if at the beginning of bankruptcy the debtor has not performed a contract to which it is a party, the other contracting party can request a declaration of whether the bankruptcy estate commits to the contract. If the estate declares that it commits to the contract and posts acceptable security for its performance within a reasonable timeframe, the contract cannot be terminated for cause.

Pursuant to Chapter 5(8)(1) and (2) of the act, according to a contract of assignment of moveable assets, if a term concerning the retention of title or repossession expires when the purchase price is paid in full, the bankruptcy estate has the right to commit to the contract by notifying the seller and paying the outstanding purchase price plus overdue interest in accordance with the original terms. Notice must given and the price paid within a reasonable time after the seller has requested payment or return of the assets.

The estate also has the right to redeem the assets at once, by paying the full amount due to the seller less interest and other costs of credit for the remaining credit period. This displaces the general rule that a creditor need not accept payment from the debtor before the agreed due date.

For further information on this topic please contact Juho Lenni-Taattola or Lasse Luoma at Hammarström Puhakka Partners, Attorneys Ltd by telephone (+358 9 474 21) or email ([email protected] or [email protected]). The Hammarström Puhakka Partners, Attorneys Ltd website can be accessed at

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