What Is a Sales Agreement with Reserving the Right of Ownership?
A sales agreement with reserving the right of ownership is a financing arrangement where a buyer takes possession of an asset, but its title and right of repossession remain with the seller until the purchase price is paid in full
The purchaser can take possession of the property as soon as the agreement is in force, but does not own the property until it has fully paid for it, which is usually done in installments. If the busines default on its payments, the seller will repossess the item.
A sales agreement with reserving the right of ownership are often put in place during the financing of machinery and equipment, as well as various forms of real estate
Benefits of sales agreement with reserving the right of ownership
A conditional sales agreement may not require a down payment and may also have a flexible repayment schedule.
Other benefits to a buyer include giving the buyer access to an asset before full payment, which can create financial leverage for a business. Buyers with weaker credit histories may also tap otherwise unavailable credit by using seller-provided financing which is particularly effective for newer business entities
Since the title does not transfer to the buyer until the completion of the conditions, the seller remains the legal owner throughout the duration of the contract. This makes it easier for the seller to legally repossess or reclaim possession because it does not have to use expensive foreclosure proceedings against the buyer after a title has been transferred prematurely
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