What is the purpose of a retention of title (ROT) clause in a contract?

The retention of title (ROT) clause serves a specific and crucial function in contract law, particularly in transactions involving the sale of goods. The primary purpose of this clause is to stipulate that ownership of the goods remains with the seller until the buyer has made full payment for those goods. This provision allows the seller to mitigate the risk of non-payment, as it ensures that they have the legal right to reclaim the goods if the buyer fails to fulfill their payment obligations.

By retaining ownership until full payment is received, sellers can protect their interests, especially in scenarios where buyers might face financial difficulties or insolvency. This mechanism provides a layer of security for sellers and ensures that they have a claim over their products, which can be particularly important in industries where goods may change hands multiple times before payment is finalized.

This understanding of the ROT clause highlights its critical role in managing risk within procurement and supply chains, making it a vital concept for professionals engaged in ethical procurement practices.