Retention of Title: When It Works, and When It Doesn't
Retention of title can give you the right to take goods back if the customer does not pay. But it must be agreed correctly, and in many situations it lapses. Here are the Danish rules.
What is retention of title?
With retention of title (ejendomsforbehold), the seller and buyer agree that the seller keeps ownership of the goods until they are paid for in full. If the buyer does not pay, the seller can take the goods back, even if the buyer goes bankrupt. Retention of title is therefore one of the few ways a supplier can protect itself against losses without requiring prepayment or a guarantee.
But it only works if it has been agreed correctly, and only as long as the goods exist in the form in which they were delivered.
The conditions in the Credit Agreements Act
The Danish rules on retention of title are in section 34 of the Credit Agreements Act (kreditaftaleloven). Retention of title is only valid if:
- it has been agreed no later than handover of the goods: a reservation first mentioned on the invoice after delivery is too late
- the total amount the buyer must pay exceeds DKK 2,000
- the credit is not a credit with a variable credit limit, such as an account credit
- for consumer purchases: the seller has received at least 20% of the cash price no later than handover
For business purchases, according to the Danish Ministry of Taxation's legal guidance, the 20% down-payment requirement does not apply, while the other conditions must still be met.
Expert tip: Include the reservation before delivery
Put the retention of title in your terms of sale and delivery and in the order confirmation, so the customer has accepted it before the goods are delivered. A reservation that only appears on the invoice has not been agreed in time.
Cars and other vehicles
If you take retention of title in a car or another registered vehicle, it must be registered in the Danish vehicle register (Bilbogen) to be protected against the buyer's creditors and against a new buyer.
When does the reservation lapse?
Retention of title only gives a right to the specific goods. It typically lapses when the goods no longer exist in their original form or no longer belong to the buyer:
- Resale: if the buyer sells the goods on to a third party who did not know about the reservation, you as a rule lose your right to the goods. Nor does the reservation automatically give you a right to the payment from the new buyer.
- Processing and mixing: if the goods are processed, or mixed with other goods so that they cannot be separated, the reservation typically lapses.
- Building into real property: materials built into a building normally become part of the property. That is why retention of title rarely protects suppliers in construction.
- No identification: if you cannot document which goods in the customer's stock are yours, the reservation is hard to enforce.
What do you do when the customer does not pay?
If you have a valid retention of title and the customer defaults, you can demand the goods back. Special rules on repossession and settlement apply towards consumers and must be followed. If the buyer refuses to hand over the goods, you can ask the bailiff's court for help.
If the customer goes bankrupt or enters restructuring, contact the trustee or administrator quickly and document which goods are covered by the reservation.
Expert tip: Mark and record the goods
Keep serial numbers, item numbers and delivery notes so you can document exactly which goods are yours. This makes it far easier to enforce the reservation if necessary.
Alternatives to retention of title
- Prepayment or part-payment on delivery
- A bank guarantee or personal guarantee
- Credit insurance
- Systematic credit checks and credit limits
Getting started
Retention of title is good, inexpensive protection when selling identifiable goods that are not immediately resold or processed. Review your terms of sale, and consider having them checked by a lawyer. Through InkassoHurtig you can get no-obligation quotes from police-authorised debt collection agencies and lawyers. This content is general information and not legal advice.