The retention of title is an agreement between the buyer and the seller, whereby the seller maintains ownership of the property in question. This, until the payment of the agreed price has been completed.
In other words, the reservation of title allows the seller to maintain the ownership of the object sold as long as the buyer has not finished paying for it.
This type of agreement is typical of a sale on credit, and works as a guarantee that the buyer will fulfill his obligation. Otherwise, the seller may recover the property through a claim to have the object returned.
We will detail some other features below.
Characteristics of the reservation of title
Among the characteristics of the domain reservation we can highlight the following:
- It is established, by clause, in the operation contract.
- It is used for the sale of movable property. In the case of real estate, the reservation of title is not widely used, since the sale on credit is usually backed by a mortgage guarantee. That is, the home itself, for example, is the guarantee to ensure the payment of the debt.
- It is a feasible agreement in the case of identifiable goods, that is, their model, brand and serial number are distinguishable. Consider, for example, vehicles, each one has a plate that distinguishes it from the others.
- It allows that, although the seller maintains the ownership of the property, the buyer can make use of it, but with the condition of not transferring the property to a third party.
- The title reservation agreement can be established between the buyer and the seller, when the latter offers the financing of the sale.
- If the operation is financed by a credit institution, the latter is the beneficiary. In other words, it is the bank or financial institution that will maintain ownership of the asset until its full payment. Instead, the seller will receive the payment in cash (from the funder).
- Each country has its own legal framework on the retention of title. In Spain, for example, for its validity, it is required that the domain reservation clause be registered in the Register of Installment Sales of Movable Property of the province where the operation was carried out, or before a notary's office.
Tags: accounting derivatives Colombia