Possessory Lien: Holding on to a Vehicle when a Customer Doesn’t Pay

In the current financial climate, where people are tightening their wallets, most repairers (and dealers) have come across the scenario where a customer simply doesn’t want to pay their bill. Whether it’s a simple repair job that reveals something more than they anticipated, an unexpected cost in the customer's life right at the wrong time, or just the general perception by the customer that a job ‘costs too much’.

Most mechanics and dealers simply don’t have the time, energy or resources to go through the court processes to enforce a debt claim, however there is a way that a mechanic can limit the likelihood of a customer dodging a bill, and that is a Possessory (Or Mechanics) Lien.

What is it?

A Possessory Lien, in short, is a common law based legal right to hold onto property (in this case a vehicle) until a debt is paid. If undertaken correctly, this is a legally valid, enforceable right that can be used to encourage compliance with a legally enforceable bill. Additionally, for those operating with business and fleet, properly applied Possessory Liens can be beneficial in the event of Insolvency on the part of the business, as they can be used to secure debts, either in conjunction with a registered interest, or in limited cases operate above a registered interest.

How can it be applied?

Broadly speaking, a legally enforceable Possessory Lien requires three things:

Proof of Authorisation: An agreement (written) between you and the customer for the repairs/works undertaken.

Evidence of Improvement: Works must have been undertaken on the vehicle for improvement. Exploratory investigation of faults will be unlikely to be enforceable, and care should be taken to separate these from works undertaken (separate invoices is useful).

Continued Unbroken Possession: As implied, a Possessory Lien requires you to have the vehicle in your possession. This needs to be unbroken. Even if a vehicle is taken out of your possession and later returned (i.e. for additional repairs), the lien will not be enforceable (though a separate lien may apply to the future bill, you cannot also use this to cover off the first).

It is also worth noting that a Possessory Lien may potentially not apply in circumstances where you may have offered some sort of buy now, pay later arrangement, or credit arrangement.

Things to be Mindful For

Whilst a Possessory Lien does encourage compliance, they are not always in a business's best interests. Care should be taken when enforcing a lien.

Some examples of when a Lien may not be appropriate include:

Lack of Paperwork: Where there is no evidence of an agreement

Complex ACL Claims: In some instances, where a customer is disputing works done per the Australian Consumer Law, and is likely to try and claim Associated Loss (i.e. loss of work for not having the vehicle).

Note: this depends on the strength of their claim and likelihood of further action, so it can be a case-by-case situation.

Storage Charges: Where you are intending to enforce contractual and reasonable storage charges (as you generally cannot do both)

It’s important to keep in mind that a Possessory Lien only lasts as long as the bill/debt attached to it does. If paid, then you are obliged to return possession. Further, additional fees (such as storage) cannot generally be used if enforcing such a lien, unless backed by an enforceable court decision.

In the case of ongoing disputes however, a Lien can be used in conjunction with an action for disposal of goods per the Uncollected Goods Act 1995. For more information, please visit our MTA NSW Website.

As a final point, you should always ensure that any vehicle under which a Lien is enforced is kept in a well-maintained and secure condition. Lien’s do not prevent a customer from pushing a Consumer Law claim, and a vehicle that degrades in your possession can push a minor fault into a potentially major one.

For more information on Possessory Liens, please feel free to reach out to our Legal Team on 9016 9000.