PASTURES NEW
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!
DISPUTES
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.
COST
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.
An earlier version of this article first appeared on Motorbase in April 2007
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.