Delivery under reservation of ownership

Delivery under reservation of ownership, hereafter referred as DRO, (Dutch: levering onder eigendomsvoorbehoud), is the transfer of a certain good from one person to another in which the title of property is not transferred unless a certain condition is met. We will explain DRO with an example.

Alice and Bob agree that she will sell him a bike. However, Bob is not able to pay the price immediately, though he will able to pay after a month. Given his financial credibility, Alice agrees to DRO of the bike. Bob is now allowed to take the bike with him, but Alice will remain the bike’s owner until Bob has paid the price.

Might Bob nevertheless fail to pay the price, then Alice can assert her rights as owner and reclaim the bike. Basically DRO functions as a security for the seller with the sold good as collateral.

DRO is a part of hire-purchase contracts. In such contract the buyer of some good will pay to the total purchase price in installments, but property title in only transferred to him once he has completed all installments.

We favour hire-purchase contracts as a tool to promote home-ownership. Local governments or housing cooperatives could, for instance, build affordable houses which are subsequently sold through hire-purchase contracts.