'Depreciation' and company vehicles
WHEN your company vehicle is off the road after an accident that wasn't your driver's fault, it can be easy in the rush to get repairs organised and a vehicle back on the road, to overlook a loss that affects private motorists and company or commercial vehicles alike.
That loss is the reduction in value that occurs when you have a damaged and repaired vehicle rather than a vehicle with an unblemished history.
If you assume that you have two similar vehicles in terms of age, mileage, service and maintenance history. If you then have a situation where one has been involved in an accident and one has not. It stands to reason that the vehicle which has been involved in an accident will not be as sought after as one that has not.
Simply put, a savvy buyer will always want to discount the price of the one with the chequered history.
Usually the loss is calculated as a percentage of the pre-accident value of the vehicle. So a company which does not recover compensation will be losing out on hundreds or even thousands of pounds.
The name for this loss in value (or reduction from the sale price that would be achieved) is often called ‘depreciation', though that is a confusing title which has created difficulties for companies making such claims.
A literal definition of the term depreciation might be ‘a reduction in the value of an asset over time, due in particular to wear and tear.' And in accounting terms: ‘the written off value of the asset over an accounting period.'
As accident damage results in an instantaneous reduction in value, it cannot be as a result of wear and tear, nor can it be said to have been incurred over an accounting period.
So what is it? A preferable term is ‘diminution in value', with the definition being ‘an acceleration of the natural depreciation which would otherwise occur.'
Thinking of it in this way distinguishes it from the other connotations with ‘depreciation' and prevents the belief that loss of value of a company car or commercial vehicle cannot be compensated for.
The argument that is often used to attempt to deprive companies from claiming this loss from the ‘at-fault' party is that as ‘depreciation' of the vehicle will have taken place in the company's accounts then company must not have suffered any additional loss in the accident.
This is wholly incorrect, as the claim for diminution in value is based on the characteristics of the vehicle and the damage it has sustained which is an assessment which must be made totally independent of the accounting practices of the company.
Another argument put forward to defeat a diminution in value claim is where the vehicle is leased to the company. The argument is that it is the vehicle leasing company, not the user of the vehicle who has suffered the loss of value.
Diminution in value claims arise regardless of whether the claim is for a leased vehicle or not. You have a duty to look after and protect the value of the vehicle save for fair wear and tear, which would include an obligation to make a claim for diminution should the need arise.
:: Maurece Hutchinson is managing director of JMK (www.jmksolicitors.com), Northern Ireland's largest personal injury and road traffic law firm, which operates from offices in Belfast and Newry. Maurece is also a Fellow of the Association of Personal Injury Lawyers