What is a lien in Australia? In which areas of everyday life can liens arise? What types of liens exist, and what should you watch out for with each? Read on for the answers.
1. What is a lien?
A lien is the right of a person or business to hold or retain possession of an item as security for the performance of an obligation owed by another party (for example, payment of money owed). Importantly, a lien only applies to personal property that is capable of being physically transferred, and effectively operates as an informal or unregistered form of security for payment.
A lien only arises when the owner (for example, the owner of a vehicle) has delivered the item to the lien-holder under express or implied authority. A lien must arise on a basis such as a contractual right, legislation, or operation of law.
Some examples to help you understand more clearly. Situations in which a person may have a lien include:
A mechanic has a lien over your car until you pay the repair costs.
A vet has a lien over your pet until you pay the veterinary bill.
Your solicitor is entitled to retain relevant documents until the fees for the legal services provided to you have been paid.
2. Types of liens
Liens can generally be divided into four types:
Statutory;
Contractual;
Common law (or possessory);
Equitable.
Maintaining actual possession of the relevant property is crucial, because the lien-holder’s rights only apply while the lien-holder has possession of that property.
1. Statutory liens
Statutory liens arise through the operation of specific legislation — for example, Part 5 of the Sale of Goods Act 1923 (NSW) and the Storage Liens Act 1935 (NSW), which set out provisions relating to liens.
2. Contractual liens
Where a lien is provided for under the terms of agreement, conditions of trade, or similar documents governing the rights and obligations of the parties to a contract, that lien is a “contractual lien”.
3. Common law liens
At common law, a lien can be either “specific” or “general”.
A “specific lien” secures an obligation that arises in respect of the particular item being held. A common example of a specific lien is a “mechanic’s lien” — that is, a mechanic’s right to retain possession of your car until you have paid for the repair services.
A “general lien”, however, is more favourable, although less common and harder to establish. A general lien allows a person to retain possession of any item held (but not to sell or otherwise dispose of it) until the owner of the item has paid all amounts owing. A general lien must be established through strict custom — for example, a “solicitor’s lien” or an “accountant’s lien” allows a solicitor or accountant to assert a lien and retain a client’s documents (or the proceeds of a court judgment) until the client has paid all outstanding debts. This is effectively an implied term of the relevant contract.
4. Equitable liens
Equitable liens are established by a court on a case-by-case basis. A judge may declare such a lien in order to uphold fairness and justice, having regard to the dealings and conduct of the parties. Unlike other types of liens, equitable liens do not require actual possession of the relevant item. The value of the lien generally needs to be considered against the substantial time and cost of seeking judicial intervention.
3. How does a lien end?
Any right to assert a lien (other than an equitable lien — that is, the fourth type described above) will expire once the unperformed obligation (for example, payment) has been performed.
4. Liens in specific situations
1. Items left at a storage facility
If your items are stored at certain storage facilities, the Storage Liens Act 1935 (NSW) applies. The storage facility has a “lien” (that is, the right to retain your items) until you pay all outstanding fees. If you pay the fees under the storage agreement, you will be entitled to the return of your items.
If there are unpaid fees and you have not arranged to pay and collect your items, then — provided the storage facility follows the procedures set out in the Storage Liens Act 1935 (NSW) — the facility will be entitled to sell your items by public auction.
If you and the storage facility disagree about amounts owing for storage or disposal of the items, it is advisable to seek professional legal help.
2. Property recovery orders under Apprehended Violence Orders
Property Recovery Orders allow a defendant or a person in need of protection to retrieve their personal items from a property. The court can make such an order when an interim or final Apprehended Violence Order (AVO) is issued.
3. Goods left with a pawnbroker
A pawnbroker lends money to someone on the condition that goods are held as security until the loan, interest, and fees are repaid. If that does not occur within the agreed period, the pawnbroker may sell the goods.
4. Construction liens
Contractors who carry out work on your property expect you to pay them. If you do not pay the contractor, these workers can lodge a mechanic’s lien with the local council. A mechanic’s lien may also be lodged if the contractor does not pay their subcontractors.
5. Car loans
If you purchase a vehicle from a dealer and finance the purchase through a bank loan, the bank will place a lien on the vehicle and hold title to it. If you default on the loan or fail to make payments, the lender may sell your vehicle to recover the loan amount.
Final thoughts
If you do not have enough money to pay off a debt, you can try to negotiate the lien. In addition, in some situations a lien may not be lawful, in which case it is advisable to contact a professional lawyer to help you assess the position. If agreement cannot be reached to release the lien, you may need to commence legal proceedings — and again, it is advisable to follow the advice and assistance of a legal professional.
