Martin Emmison of Goodman Derrick LLP explains why….
Around 1988, at the height of the 1980s collector car boom, I decided to try my hand at building a legal practice in the collector car field. As a commercial solicitor with a consuming interest in V12 Ferraris and all things Bugatti, I sensed that deeds of tax indemnity and software contracts would pall somewhat over the next 20 years. On the other hand, maybe the prospect of writing a contact to buy a Jaguar D-Type would persuade me out of bed on a cold January Monday morning. I therefore began to hold myself out as an expert in the legal side of expensive car transactions. After five deals I probably was an expert, because no other lawyer to my knowledge was doing this. After a hundred deals I became the world's expert - all of which is fine, as long as you don't start believing your own propaganda.
Who needs a lawyer for a car purchase?
So, you may ask, why would you need a lawyer when buying or selling an old car? My reply is to pose another question: if you were dealing with an estate agent, and agreed to buy a house they had on their books for £5,000,000, would you simply write a cheque to the estate agent? Of course not: the agent would ask who were your solicitors, the vendor's solicitors would contact yours, and the matter would proceed, with all the normal searches, enquiries and formalities, to exchange of contracts and completion. If we examine why this is, the main answer is TITLE. Your lawyer's primary task is to determine who is the legal owner of that property, because only the legal owner can pass good title to you. By definition the estate agent does not own the house. If you simply paid the price to the agent, you would not get good title to the property. Your solicitor will check who is the legal owner (normally registered at HM Land Registry), make sure that all mortgages or other charges registered against that title are released, check that the house is not about to be compulsorily purchased by the local authority, and ensure that against payment of the price a transfer document is signed by the person who genuinely owns the property, and then it is registered in your name.
The same principles apply to buying cars. Only the legal owner of the car can pass title to the buyer, either by giving a receipt or bill of sale for the price paid, or by the owner's authorised agent doing so on his behalf. Unfortunately, when the DVLA computer-based vehicle registration system was set up by the British Government in the late 1970s, they missed the opportunity (which many sophisticated countries have taken) to create a system of registered title and mortgages as to cars. We all know that the DVLA V5 registration is not a document of title. So why do buyers rely on it, without independent verification? And, why do experienced business people frequently pay substantial sums to car-dealing middlemen, without checking that the dealer really has authority to sell the car, and that the money will reach the legal owner, so that title will pass?
Avoiding expensive mistakes
Whether you are planning to spend £10,000 or £1million on a car, there are many ways in which you can slip up and make an expensive mistake. When you negotiate with a car dealer, how do you know that he has the owner's authority to sell the car? He might simply be looking after it for someone who is abroad. Then again, how badly will you feel if you pay the price to the wrong person? For instance, what if the car really belongs to a leasing company, or is the property of a trading company, and the registered keeper is a former director who was fired but never handed it back? Or what if the car is registered in the name of the 80 year old father who still looks after it, but 15 years ago he gave the car to his son by deed of gift? The father may then have fallen out with his son, who will make your life Hell when he discovers that his car is gone, and the old man has given away the money to his young mistress.
Or what if you buy a historic car which turns out to be a complete fake; or there are two cars of the same chassis number, and the genuine car of that identity turns up in Japan, and you have bought the clone? In this last situation, what constitutes the genuine car is a fascinating subject, too detailed for this article. Suffice it to say that the lawyer's task in representing buyers is not only to act as scribe and help to get the deal done quickly and smoothly, but also to avoid these big mistakes.
If in doubt, put it in writing
We all know that the seller (whether dealer or private individual) will be tempted to make statements about the car he is selling which may, shall we say, stretch the truth. In advising the buyer, the lawyer will seek to ensure that the seller's persuasive verbal or email statements become contractual undertakings, on which the buyer can not only rely, but for which he can in theory pursue the seller, if they turn out to be incorrect. For instance, the seller may say that the engine was rebuilt 2000 miles ago and the gearbox is fully reconditioned. Generally a mechanical inspection will not totally verify the truth of these statements unless the internals are inspected, which normally a seller will not allow. However, if those statements become conditions of the written contract, the buyer will have a remedy in breach of contract against the seller, if it turns out that either statement is incorrect. In practice the buyer will probably not want to sue, if a written statement turns out to be untrue, but the benefit of demanding the statement in writing is that often this will dig out the real truth.
Where the value of a car lies in its apparent historical provenance, particularly the originality of its components and the competition or ownership history of that car, it becomes especially important to convert the 'sales' statements into contractual terms. The seller may tell you that the Alfa Romeo he is selling is particularly valuable because it was owned by Mussolini. This statement may be very difficult to verify in the short timescale before you must make up your mind. However, if it is turned into a contractual warranty, and it later turns out to be incorrect, the buyer will have a remedy, including perhaps the right to rescind the contract and get his money back, provided that the seller can still be found and still has money. When the buyer asks for a contractual warranty that "this car was owned by Mussolini” the seller generally backs off, and qualifies it by saying: "to the best of my knowledge this car was owned by Mussolini, but I can’t swear to it...". At which point the canny buyer will negotiate a reduction in the price!
Acting for the seller
So much for buying, how can a lawyer help someone selling a historic car? The main issue here is to ensure that the seller does not part with physical possession of the car or its documents until he has received cleared funds, and that he avoids giving any statements about the condition of the car that can not be verified or justified. Confidentiality of the price is often important to a seller. While it is often said that buying a car is much easier than selling it, the opposite is true on the legal side. If you are selling, just stay tough!
I much prefer the deals, because at the end of a deal everyone is happy. After a dispute, generally no-one is happy. However, disputes happen and need to be dealt with. Therefore, as the saying goes, litigation is part of the territory. As in most fields of activity, disputes are not normally about a principle, generally disputes are about money. Examples would be: an agent sold a car, and failed to account to the owner for the proceeds; OR a car was sold represented as an original Formula 1 racing car, when in fact it only ran in period in Formula 2; OR a restorer agreed a fixed price of £60,000 for a body-off rebuild, and while the car is a long way from being finished the bills already total £110,000.
We all know that lawyers are expensive. Generally our work is charged for by reference to time spent, not value of the asset. Buying a £10,000 MGA is not much less complicated than a £10M Ferrari, mainly because the problems the lawyer has to deal with are rarely related to (let alone caused by) the cars themselves. Far more likely they are caused by the people involved. I normally reckon £1,500 plus VAT as the minimum charge for acting for a buyer in a straightforward and quick high-value car deal. When it gets messy, lengthy or tightly negotiated this can often rise to £4/5,000, and the really difficult transactions can be three times this. However, even this level of expense pales into insignificance, when compared to the downside of paying a king's ransom to drive away your dream machine, and then discovering that the dream machine belongs to a finance company, and you have paid a fraudster now living (on your money) in Guatemala.
If you would like any further information about the issues raised in this article please contact Martin Emmison, (email@example.com) or any other member of Goodman Derrick LLP’s collectors cars team on 0207 404 0606.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice.
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