Retention of title

Selling an asset with retention of title implies a condition in the purchase terms that the asset is not fully owned by the buyer until the conditions of the sale are met. Typically, the retention of title is linked to the payment of the asset, but in principle it can also include other conditions.

A retention of title is a term inserted into the purchase agreement and can affect the overall purchase as well as both the buyer and the seller/lender. For the seller, retention of title has a number of obvious benefits, most notably the ability to reduce risk by transferring ownership and usage rights before the asset is fully paid for.

What is a retention of title?

A retention of title is a condition in a purchase agreement where the seller wants one or more conditions fulfilled before the buyer fully owns the asset. The vast majority of retention of title clauses are inserted in connection with loans and financing.

In Denmark, it is common for banks and finance companies to require retention of title for vehicles. However, retention of title can be used in many other purchase situations.

The reservation means that certain conditions must be met before ownership of the asset is transferred to the buyer. For example, it may be a condition that the buyer does not own a car until the loan is fully repaid.

What are the benefits of a retention of title?

If you as a seller or lender are financing an asset of greater value, such as a vehicle, there is always a risk that the buyer will not pay all or part of the agreed installments.

By introducing a retention of title, the seller can take back the sold or financed asset if the buyer defaults on one or more installments. In this way, the seller minimizes the risk of selling on credit.

What you need to be aware of with retention of title

Before selling assets with retention of title, it's important to be aware of the relevant legislation and the conditions that must be met for retention of title to be legally valid.

Here are some key requirements:

• The retention of title must be contractually agreed between the parties and written into the purchase terms at the latest at the time the asset is transferred to the buyer.
• The total purchase price must exceed DKK 2,000.
• A payment plan with several installments, such as 5, 10 or 20 installments, must be agreed in advance. The number of installments is not decisive.
• At least 20% of the asset's price must be paid as a down payment at the latest when the asset is transferred.

You can read more about the requirements in Section 34 of the Credit Agreement Act.