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August 23, 2013updated 12 Apr 2017 4:01pm

Steps to take to secure return of seized assets

Joanne Davis and Tim Anson say lessors should ensure compliance with operating requirements.

By Leasing Life

If you’ve ever leased an asset to a customer that’s subsequently been seized by a government agency, you probably already know how frustrating it can be getting it back, say Joanne Davis and Tim Anson.

This is especially true when the asset has been seized for a legal or regulatory breach by the lessee that you have no knowledge of. Financiers with high exposure to areas such as fleet management can be particularly vulnerable, for example when assets are being operated without the requisite operating licence. There are steps you can take, however, to protect your interest both before and after an asset has been seized.

Legal experts are often asked by lessors: "How can I get my asset back if it’s been seized for use without an operating licence?" In answer, it’s not uncommon to see bodies such as the Traffic Commissioner imply a borderline-onerous burden on lessors to monitor proactively whether their assets are being operated with the requisite licences. This can be challenged at tribunal as there is a considerable volume of rulings giving authority to the view that, if there is a contractual term between parties conferring the obligation to ensure appropriate licensing on the lessee, the lessor is under no further obligation to make enquiries regarding ongoing licensing requirements.

Less straightforward are situations where an issue may come, or reasonably be expected to come, to the lessor’s attention that an asset is being used in contravention of operating regulations. Goods vehicles in particular are subject to Regulation 10(4) (c) of the Goods Vehicles (Enforcement Powers) Regulations 2001 that confers on lessors an obligation not to turn a blind eye wilfully to breaches of operating requirements. If it comes to your attention that a customer is operating a vehicle without such a licence, you must seek to terminate the contract for breach (provided of course that there is a term conferring obligation on the lessee – if you don’t have this in your standard-form contracts you should look at adding one) and look to recover the asset before it is seized. Even if it is seized, demonstrating that you have taken steps to prevent the continued breach of operating regulations will present stronger grounds to the tribunal for returning the asset to you.

There are also questions about the extent to which lessors should satisfy themselves that operating requirements are being met prior to entering into the agreement. It’s good commercial practice to undertake checks as part of the underwriting process and, if you already do this, keep accurate records as evidence. There are previous tribunal rulings suggesting that no such pre-contract requirements are necessary. However, it’s recommended that if you don’t currently make these checks, you should look at putting such procedures in place now that can be adequately evidenced in the future. This will make it easier for you to plead at a tribunal that you have not breached any requirement.

The law surrounding this topic is complex. However, by following some of these tips, lessors can take steps to protect themselves and their assets.

Joanne Davis is a partner and Tim Anson a paralegal in the DWF asset finance team

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