What is a retention of title?

A retention of title is a legal agreement in which goods are delivered but not immediately transferred in ownership. In other words: the seller remains the owner until the buyer has paid the full purchase price. Only after the final payment does ownership automatically transfer to the buyer—no further steps required.

This rule protects sellers from losing out in the event of non-payment. It is particularly common in cases where goods are delivered on account. The retention of title creates a balance between delivery and payment and is a standard part of many business relationships—both in B2B and B2C contexts.

How is retention of title defined under the law?

The legal basis for retention of title is found in Section 449 of the German Civil Code (BGB). It states that if a reservation is agreed upon in a sales contract, ownership transfers only after full payment has been made. This means the goods remain with the seller. Ownership does not change hands until the final installment or the full purchase price has been paid.

Retention of title is considered a form of secured ownership. It protects the seller by ensuring that goods are delivered even if payment has not yet occurred.

When is retention of title used?

Retention of title is almost always used when goods are handed over before payment is made. In practice, this happens very often—for example in the following situations:

Delivery on account with a payment term
Partial or installment payments
Ongoing business relationships with subsequent consolidated billing
Commercial transactions between companies (B2B)
Online purchases with deferred payment

Retention of title is especially common in companies’ general terms and conditions (GTCs). A typical clause reads: “The goods remain our property until full payment has been made.” For this rule to be valid, it must be known to the buyer before the contract is concluded—otherwise, it has no legal effect.

How does retention of title work?

Retention of title changes the usual order of a purchase transaction. Normally, ownership of goods passes to the buyer upon delivery. With retention of title, this only happens once the buyer has actually paid. Until then, the buyer may use the goods, but cannot fully dispose of them.

If payment is not made—or only partially made—the seller can demand the return of the goods. The buyer cannot argue that they are the owner, because legally, they are not.

This principle works without any separate registration or special procedure. Retention of title takes effect automatically as soon as it is contractually agreed upon.

What is the status of ownership before and after payment?

Before full payment is made, the seller retains ownership. The buyer merely has possession of the goods. This means they have the goods in their care and may use them—but they may not sell, pledge, or modify them without the owner's permission.

After full payment, the legal situation changes automatically. The buyer then becomes the owner and can freely dispose of the goods. No additional contract or registration is necessary to transfer ownership—this follows directly from the law.

What types of retention of title are there?

In practice, there are three main types of retention of title. The type used depends on the contract or GTCs:

Simple retention of title: Applies only to the specific goods delivered. Ownership transfers as soon as those goods are paid for.
Extended retention of title: Also applies to other, already existing claims.
Prolonged retention of title: Allows the buyer to resell the goods. The resulting receivables are then assigned to the seller.

These variations can be combined. This is common especially in business-to-business transactions.

What is simple retention of title?

Simple retention of title is the standard form. It stipulates that the seller retains ownership of the delivered goods until the buyer has fully paid the related invoice.

This provision is especially common in standard contracts and online terms and conditions. It already offers a basic level of protection against payment defaults—especially in one-time transactions or smaller deliveries.

What is extended or prolonged retention of title?

Extended retention of title applies not just to a specific delivery but to all outstanding claims the seller has against the buyer. Ownership transfers only once all invoices have been paid. This type is used in long-term business relationships or large framework agreements.

Prolonged retention of title allows the buyer to resell the goods in the course of their business, for example in retail. The receivables arising from the resale are automatically assigned to the original seller. This ensures continued security, even if the goods themselves are no longer physically present.

Who owns the goods during the retention period?

Until the purchase price has been fully paid, the seller remains the legal owner of the delivered goods. The buyer merely holds possession. This means:

The buyer may use the goods, e.g., store or operate them.
However, they may not sell, gift, or use them as collateral for third parties.
In the event of non-payment, the seller may demand their return.

This legal separation between possession and ownership is firmly anchored in German civil law. It provides a clear advantage for the seller: they can assert their rights through legal means if necessary—for example, by initiating a judicial dunning process or enforcement proceedings.

What does retention of title mean in the context of debt collection?

In the context of debt collection, retention of title serves as an additional safeguard for creditors. If the debtor has received goods but has not paid for them, the creditor may—under certain conditions—demand the return of the goods instead of merely insisting on payment.

This is particularly relevant when:

The claim is undisputed but remains unpaid
The debtor is in financial difficulty
The goods are still in the debtor’s possession

In such cases, retention of title can help limit losses or apply pressure to reach a settlement.

What role does retention of title play in open claims?

Open claims represent a risk for creditors. Retention of title helps reduce that risk by allowing the creditor to reclaim the goods rather than relying solely on payment. For this reason, it is also a key tool for debt collection service providers.

Advantages at a glance:

Right of reclamation: The goods can be demanded back in case of non-payment.
Negotiation leverage: The debtor faces pressure, since they risk losing the goods.
Time savings: An out-of-court solution can often be reached faster than through enforcement proceedings.

Retention of title is especially effective for high-value products—such as machinery, vehicles, or technical equipment—as a complement to conventional debt collection methods.