Accession of Equipment
Most asset finance agreements contain an express provision that any equipment added to the asset financed by the lessee automatically belongs to the financier. This reflects the common law doctrine of accession, by which the rights of the original owner of the added equipment are extinguished.
The most common application of this principle is in relation to vehicles, and it applies wherever the lessee substitutes equipment or adds new equipment to a vehicle on finance.
There is however an exception in relation to the special case of tyres, which obviously can easily be removed from vehicles. This also has the consequence that if the tyres have been supplied on sale terms including retention of title, the supplier will normally be entitled to assert its rights of ownership against the financier.
There is no direct authority in English law dealing with the question of whether the addition of tyres to a vehicle amounts to an accession, which would have the effect that the tyres became part of the owner’s property thereby extinguishing the claim of any third party to title to the tyres.
However, the point has been considered in several Commonwealth authorities and they establish that because tyres can easily be removed the addition of tyres to a vehicle does not constitute accession: see for example the Canadian case of Firestone Tyre and Rubber Co v Industrial Acceptance Corporation (1971) 17 DLR (3d) 229.
Because there is no accession, the view of the leading textbook on English law is that the rights of the third party owner in these circumstances are not extinguished: see Goode, Hire purchase Law and Practice (second edition 1970) at page 755: –
“… if the article added does not constitute an accession – i.e.because it is severable without causing material damage to the goods – then the owner of the article does not lose his title to it. This is so despite a provision in the Hire – purchase agreement that chattels added to the goods should vest in the owner of the goods; for such a provision is not operative as regards additions which are owned by a third party. The fact that the third party was aware that his article was to be affixed to another’s goods by one who was not the owner of those goods but merely a hirer is irrelevant, since if the degree of annexation is not such as to cause an accession notice of the annexation has no impact on the title of the owner of the added article.”
Financiers who are involved in funding sub-lessors of fleets of vehicles should therefore be aware that there is a risk of suppliers successfully enforcing retention of title claims over tyres which have been added to their vehicles, and in some cases values of considerable sums are involved.