Equipment leasing

How BC law treats it

Commercial equipment leases are governed by the lease contract and by the Personal Property Security Act, RSBC 1996, c 359 (PPSA). The BPCPA lease disclosure rules apply only to consumer leases of goods for personal, family or household use, not to business equipment. The PPSA distinguishes two kinds of lease. A security lease is in substance a financing arrangement: for example, the lessee can buy the equipment for a nominal amount at the end of the term, or the payments roughly equal the price plus interest. It is a security interest in every sense. A true lease, where the lessor expects the equipment back with real residual value, is still brought under the PPSA's registration and priority rules if its term is more than one year. To protect its interest against the lessee's other creditors, a receiver or a trustee in bankruptcy, the lessor must perfect its interest, normally by registering a financing statement in the Personal Property Registry. An unperfected lessor can lose the equipment to a trustee in bankruptcy or to a secured creditor that registered first. A lessor that registers within the PPSA's time limits can obtain purchase money priority over an earlier general security agreement. On default, the lease terms govern acceleration of payments, repossession and the calculation of the lessor's loss, with Part 5 of the PPSA setting rules for enforcing a security lease. Lessors commonly require a personal guarantee from the owners of a small business lessee; under the Law and Equity Act, s. 59(6), a guarantee must be evidenced in writing signed by the guarantor or shown by the guarantor's conduct.

What it means for your business

Leasing lets a business get trucks, machinery or technology without a large upfront payment, but the lease terms decide who bears the risk of breakdown, loss and early termination. Lessees should understand end of term buyout options, acceleration clauses and personal guarantees before signing. Lessors that fail to register in the Personal Property Registry can lose the equipment entirely if the customer becomes insolvent. Example: A Prince George logging contractor leases two skidders for five years with a $1 buyout at the end. The lease is a security lease, so the lessor registers a financing statement before delivery to take purchase money priority over the contractor's bank.

Risks and common mistakes

Assuming a lessor does not need to register because it still owns the equipment. Signing a personal guarantee without reading the default and acceleration clauses. Overlooking the end of term buyout, return condition and renewal provisions until the lease expires. Treating a commercial lease of equipment as protected by consumer lease rules. Failing to check the Personal Property Registry before buying used equipment that may still be leased.