Retention of title clauses in Australia: why the clause alone does nothing
Updated 2026-10-29
Before 2012 a retention-of-title clause meant a supplier could walk into a collapsed customer's warehouse and take back unpaid stock. It still says that. It just doesn't work unless the supplier also registered on the PPSR, and most small suppliers never have.
What the clause does
A retention-of-title (ROT) clause in your terms of trade says title in the goods stays with you until the customer has paid for them, usually extended to all amounts the customer owes you. Under the PPSA that is a security interest: an interest in personal property that secures payment. The Act looks at substance, not the words 'security' or 'charge'.
Because it is a security interest, it has to be perfected by registration to be effective against the customer's other creditors and against an administrator or liquidator. An unregistered ROT clause gives you a contractual right against a company that has no money, and nothing against the goods.
What registration adds
- Survival in insolvency: a registered interest does not vest in the customer under section 267; an unregistered one does.
- Priority over the bank: registered in time and flagged as a purchase money security interest, your claim to the goods you supplied ranks ahead of the bank's earlier all-assets charge.
- Proceeds: with the right clause and the 'proceeds' box ticked, your interest follows the money when the customer on-sells your goods.
- Leverage with the administrator: a registered secured party is dealt with first and has rights the administrator must respect.
What the clause needs to say
A clause that only retains title is not enough on its own. Terms that work for a registration also state that the terms are a security agreement, that the customer consents to registration and will help perfect it, that the customer waives the verification statement notice (s157), that the parties contract out of the enforcement provisions commercial parties can exclude (s115), and that the customer will give notice before changing its name or ABN. A proceeds clause and a right to enter and repossess round it out.
The customer has to have accepted the terms in writing before the goods are delivered: a signed credit application, a signed quote, or a click-through. Terms printed on the back of the invoice after delivery are the weakest footing there is.
Timing
For inventory, the registration must be made before the customer takes possession to get PMSI priority. The practical answer for a supplier on continuing terms is one registration per customer, lodged when the customer accepts the terms, covering every future supply.
If the customer is a company, section 588FL of the Corporations Act also requires registration within 20 business days of the terms coming into force, or at least six months before an administrator or liquidator is appointed. Miss both and the goods vest in the company.
What it costs
| Item | Cost |
|---|---|
| PPSR registration, up to 7 years (government fee) | $6 |
| PPSR search of a customer (government fee) | $2 |
| OnTerms Protect: we lodge it from your documents, fee included | $49 |
| OnTerms Starter plan: renewals, alerts and 10 registrations a month | $39 / month |
Common questions
My terms have had an ROT clause for years. Am I protected?
Only if you have registered against each customer on the PPSR. The clause creates the interest; the registration is what makes it count in an insolvency.
Can I register against a customer without their consent?
You must believe on reasonable grounds that you are, or will become, a secured party over the goods, which in practice means the customer has accepted terms containing the clause. A consent-to-register clause in those terms makes it simple.
Do I need a new registration for every invoice?
No. One registration per customer, over inventory and other goods supplied under your terms, covers future supplies while it is current.
What happens if the customer sells my goods before paying?
A buyer in the ordinary course of business takes the goods free of your interest, but your interest continues in the proceeds if your terms and registration cover them.