Business gets difficult when clients don’t pay their bills. One of the most regular queries from RMI4Law members is whether they can hold onto their client’s goods in lieu of payment, when the customer won’t settle an account. In the motor industry, we mostly deal with the category of retention rights known as the debtor-creditor retention right. This right comes into play when the owner of the property owes money to the retention right holder in terms of a contract; for example for the repair of a motor vehicle.
TO HAVE AND TO HOLD
The requirements for lawfully retaining property are as follows:
- There must be a debt owing to the holder of the retention right.
- The owner and the holder must be parties to a contract under which the debt is owed.
- The debt must be owed by the owner of the property to the one retaining the right.
- The debt must be in relation to the specific property retained.
- The holder must also have and be in control of the property.
GETTING THE MONEY
The purpose of a retention right is to force the owner of the property to pay their debt owing. The property acts as security for the payment of the debt and, although the holder of a retention right may refuse to return the property to the owner, they may not dispose of the property, or sell it to a third party to recover the debt. Retained property may be sold on auction only by a sheriff acting with a warrant of execution. This is issued only after the holder gets a valid judgment against the owner of the property. You first have to take legal action against the owner before you will be able to recover the debt. But it’s important to note that refusing to return property after you’ve received a sufficient alternative security for the debt is unlawful. It’s often seen that an attorney acting on behalf of a debtor offers to set security in the form of money equal to the amount owed by his client, and requests the dealer to release his client’s car, just for the dealer to refuse and end up on the losing side of an urgent court application. When alternative security is offered – especially in the form of money – in return for the release of a vehicle, it is advisable to release the vehicle. In most instances, the court will find that the purpose of retaining the vehicle is met by the monetary security while the owner of the car can still use the vehicle. However, prior to returning the property, you must make sure the alternative security is real and you have received it.
GET IT IN WRITING
The only way to use a retention right is to enter into a properly drafted contract with the property owner before rendering any services. Such a contract should, among other things, contain the correct details of the property owner, an address for the service of court process, the exact service to be provided and the amount to be charged. It is best to approach an attorney to assist you with such a contract as the details are important.
Andries Stander is an attorney at Barnard Incorporated.