Retention of Title in Germany

Yes. German law explicitly recognises retention of title (Eigentumsvorbehalt) as a common form of security in sale of goods contracts. Set out in Section 449 of the German Civil Code (BGB), the rule provides that if a seller reserves ownership until the full purchase price is paid, the transfer of title is subject to that condition. In practice, retention-of-title clauses are widely used in commercial transactions involving goods sold on credit and are considered one of the most important security tools in the German market.

Under a simple retention-of-title clause, the buyer receives possession and may use the goods, but legal ownership remains with the seller until payment is made in full. This is possible because German law separates the obligation to transfer ownership from the actual transfer itself and allows ownership in movable goods to be made conditional—unlike in the case of real estate.

In addition to the basic model, more complex forms are often agreed, including extended or expanded retention-of-title arrangements. These aim to secure not just the original purchase price, but also other present or future claims the seller may have against the buyer. These variations are discussed in more detail below.

If the buyer becomes insolvent and insolvency proceedings are opened, goods sold under a retention-of-title arrangement do not form part of the insolvency estate. Legal title remains with the seller until the condition of full payment is met. Until then, the buyer merely holds an expectancy right (Anwartschaftsrecht), meaning a right to acquire ownership in the future, but not ownership itself. As a result, the seller retains the right to reclaim the goods, since insolvency does not alter ownership.

Under German insolvency law, the seller may assert a right of Segregation (Aussonderungsrecht), which entitles the seller to recover property that belongs to them from the insolvent estate. To exercise this right, the seller must typically withdraw from the contract in accordance with Section 449(2) BGB—commonly triggered by the buyer’s default or the opening of insolvency proceedings. In such cases, the insolvency administrator is obliged to release and return the goods, as they are not available for distribution among the debtor’s general creditors.

This right of segregation, however, applies only if the goods are still in the buyer’s possession, identifiable, and unaltered. If the goods have been resold or incorporated into a new product prior to insolvency, the seller’s rights change accordingly. To address such scenarios, retention-of-title clauses often include extended provisions. For example, the seller may permit resale of the goods under the condition that the buyer’s claim against the sub-purchaser is automatically assigned to the seller in advance. In that case, the seller gains a right of separation (Absonderungsrecht) in respect of the proceeds.

Similarly, if the goods were processed or combined with other items, the seller may acquire co-ownership in the resulting product, proportionate to the value contributed, pursuant to Sections 947 to 950 BGB. In summary, if the buyer is insolvent and the goods remain identifiable and unpaid, the seller can reclaim them. If the goods have been sold or transformed, the seller’s rights extend to the resulting claims or substitute assets, to the extent permitted under German law and the contractual retention-of-title arrangement.

German law does not impose any formalities—such as notarisation, registration, or public filing—for the validity of a retention-of-title clause in a commercial (B2B) sale. It is treated as a private contractual arrangement. However, such a clause must be expressly agreed between the parties, typically at the time the sales contract is formed. There is no automatic or implied reservation of ownership under German law. Section 449(1) of the Civil Code (BGB) makes clear that ownership is retained only if the seller explicitly reserves title until full payment has been made.

In practice, retention-of-title clauses are commonly included in written contracts or in the seller’s General Terms and Conditions (Allgemeine Geschäftsbedingungen – AGB). For these terms to be effective, they must be validly incorporated into the contract under general contract formation rules. In business-to-business transactions, it is usually sufficient for the seller to refer to its standard terms, including the retention-of-title clause, and for the buyer to proceed without objection—thereby tacitly accepting them.

In consumer transactions, stricter requirements apply: the clause must be clearly disclosed and expressly accepted. Nevertheless, simple retention-of-title clauses are also permitted and frequently used in B2C sales.

The critical elements for validity are timing and clarity. The clause must be agreed as part of the original contract. A retention-of-title clause cannot be introduced unilaterally after the contract has been concluded. For instance, simply printing the clause on an invoice or delivery note sent post-contract would not suffice to incorporate it. In such cases, the clause would only be effective if the parties subsequently reach a mutual agreement, which is uncommon in practice.

Provided it is validly agreed at the outset, no further formalities are required for the clause to take legal effect.

It is not necessary under German law to document a retention-of-title clause for each individual item sold. Instead, the parties may validly agree to a general or framework retention-of-title arrangement—whether in a master supply agreement or in the seller’s standard terms—to apply to all present and future deliveries. German law permits what is commonly referred to as extended retention of title, including so-called “all-monies” or Kontokorrentvorbehalt clauses, which secure not just one transaction, but the entire business relationship.

Under such arrangements, the seller retains ownership of all goods delivered until the buyer has settled all outstanding obligations arising from the commercial relationship. This means that even if a specific invoice has been paid, title may be reserved until all amounts due across multiple deliveries are satisfied. The effect is that newer goods delivered can secure older debts, and vice versa. These clauses are widely used in business-to-business transactions and are generally enforceable, provided they are validly incorporated into the parties’ agreement.

There are, however, statutory limits. Section 449(3) BGB prohibits Konzernvorbehalte—that is, retention-of-title clauses cannot be made contingent on the buyer fulfilling obligations owed to third parties, such as affiliates of the seller. The clause must relate only to the buyer’s obligations owed directly to the contracting seller. Moreover, if the retention-of-title arrangement results in excessive security coverage, it may be subject to review under general contract law, in particular Section 138 BGB (unconscionability) or Section 307 BGB (unfair terms in standard business conditions).

That said, in ordinary commercial practice between merchants, well-drafted blanket retention-of-title clauses are standard and legally effective. There is no requirement to enter into a separate agreement for each delivery. However, for enforcement purposes, it remains essential that the goods in question are identifiable and traceable—typically achieved through consistent documentation, serial numbers, or marking.

In summary, retention of title can be agreed on a general basis to cover all deliveries within an ongoing business relationship, so long as the clause is properly incorporated and complies with statutory limitations.

In cross-border sales, retention-of-title clauses are generally recognised, but their legal effect depends on the applicable law—particularly the property law of the country where the goods are located. Under widely accepted conflict-of-law rules, rights in rem over movable goods are governed by the lex rei sitae, i.e., the law of the place where the goods are situated at the relevant time. As a result, even where the parties have agreed that German law governs their contract, questions regarding ownership, enforceability against third parties, and insolvency treatment may fall under the law of the country in which the goods are physically located.

For example, if a German seller delivers goods to a buyer in another jurisdiction, that jurisdiction’s property and insolvency law will typically determine when ownership passes and whether the retention-of-title clause is effective. While many European countries recognise such clauses, the legal requirements can vary. Some jurisdictions may require that the clause be agreed in writing prior to delivery, while others mandate public registration to ensure enforceability against third-party creditors.

Within the European Union, retention-of-title clauses benefit from a degree of harmonisation. The EU Late Payment Directive (2011/7/EU) requires Member States to ensure that a seller’s retention-of-title remains effective until full payment, provided the clause was agreed before delivery. Accordingly, a validly incorporated retention-of-title clause under German law will generally be upheld across the EU, allowing the seller to retain ownership until payment is received.

Further protection is provided under the EU Insolvency Regulation (Regulation (EU) 2015/848). Article 10 of the Regulation safeguards the seller’s rights under a retention-of-title clause when goods are located in a Member State other than the one where insolvency proceedings are opened. This prevents a debtor’s cross-border insolvency from defeating the seller’s ownership rights solely due to the goods having moved across borders. Likewise, if the seller becomes insolvent after dispatching the goods, the buyer’s right to acquire ownership upon payment remains protected under the applicable law of the goods’ location.

It is also important to consider the possible application of the UN Convention on Contracts for the International Sale of Goods (CISG) in international transactions. The CISG governs contract formation and the incorporation of standard terms but does not regulate the transfer of ownership or the legal effect of retention-of-title clauses—those matters are left to national law. Therefore, parties relying on retention-of-title in CISG-governed contracts must ensure their standard terms are effectively incorporated under CISG rules, which typically require that the terms be made available to the other party at the time of contracting.

In sum, retention-of-title remains a powerful security mechanism in cross-border transactions, particularly within the EU, where its recognition is supported by harmonised legislation. Nonetheless, parties must always consider the lex situs and ensure compliance with local legal requirements to ensure the clause is enforceable in the jurisdiction where the goods are located.