Canadian Lease Education Program. December 2009 Canadian Finance & Leasing Association

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1 Canadian Lease Education Program

2 Copyright Material The material used in this presentation is the property of the Canadian Finance & Leasing Association (CFLA). This material may not be reproduced or used in any other manner without the expressed written permission of the CFLA.

3 Outline I. Lease Documentation a) Principal Documents b) Ancillary or Supporting Documents II. Key Provisions in Leases 3

4 Lease Documentation: Principal Documents Lease Contract Master Lease & lease schedules Snap Lease Exhibits Delivery & Acceptance Certificate Personal/Corporate Guarantees 4

5 Lease Documentation: Ancillary Documents Authorizing Resolutions PPSA Filings Fixture Filings Real Estate Waivers Purchase Order & Lessee Purchase Order Invoice 5

6 Lease Documentation: Principal Documents Lease Contract Basic document by which a lessor agrees to provide equipment or other personal property or rights to a lessee, in return for rental payments. 6

7 Lease Documentation: Principal Documents Master lease General provisions that will apply to all lease transactions Lease Schedule Specific business terms of each lease transaction Snap lease Single lease transaction 7

8 Lease Documentation: Principal Documents Exhibits Formal additions to lease agreement Used to modify standard provisions or to provide more detailed information than available space in lease Signed or initialed by the lessee 8

9 Lease Documentation: Principal Documents Delivery and Acceptance Certificate ( D&A ) Evidences delivery of Equipment by lessor to lessee Evidence of satisfaction of one formality for PMSIs Acknowledgment that lessee is fully satisfied with Equipment 9

10 Lease Documentation: Principal Documents Personal/Corporate Guarantees Co-lessee vs. Guarantor Issues Consideration Waiver of defences Prohibited financial assistance by corporate guarantors Supporting documents for individual guarantors 10

11 Lease Documentation: Ancillary Documents Authorizing Resolutions Required for artificial bodies (e.g., corporations) Corporate body and individual signing on behalf of the corporate lessee/guarantor are authorized to sign applicable documents Limited exception for ordinary course of business transactions 11

12 Lease Documentation: Ancillary Documents PPSA Filings To perfect and protect lessor s interest in Equipment Technical Rules Lessee s Name Location Timeliness re: PMSI priority Collateral Description & Serial Numbered Equipment Mandatory Amendments 12

13 Lease Documentation: Ancillary Documents Fixture Filings Provides a lessor with a greater priority position vis-à-vis competing parties with an interest in the real property Practice Tip as to when to do fixture filing: If Equipment is of sufficient value and (i) is or will be physically affixed to a building and/or (ii) if a subsequent purchaser of building would expect that the purchase would include Equipment 13

14 Lease Documentation: Ancillary Documents Real Estate Waivers Real property interests confirm that Equipment belongs to lessor Real Estate Waiver vs. Fixture Filing 14

15 Lease Documentation: Ancillary Documents Purchase Order Issued by lessor to supplier of Equipment If supplier complies with all the terms and conditions, then lessor will pay supplier the purchase price PO includes representations, warranties and/or covenants from supplier Lessee Purchase Order Issued by lessee to lessor (used for vehicle orders) Lessee is obligated to accept unspecified future delivery with limited exceptions 15

16 Lease Documentation: Ancillary Documents Invoice Issued by supplier of Equipment to lessor seeking payment for Equipment Should also demonstrate passage of title from supplier to lessor Issues: Invoice from a vendor not in the business of selling such goods Invoice directed to a party other than lessor 16

17 Key Provisions in Leases Identification of Parties Correct legal names Creation of Lessor and Lessee Relationship Clear and unambiguous language Description of Equipment Sufficient to identify Equipment or provides the means of identifying Equipment Term of Lease How long the legal relationship will continue? When does the lease term begin? 17

18 Key Provisions in Leases Acceptance of Equipment by Lessee Lessee represents that it will accept Equipment when fully delivered and operational Rent Provisions Amount, number, frequency of rent payments Dates that such payments are due Interim rent 18

19 Key Provisions in Leases Hell or High Water Provisions Notwithstanding anything that may occur, the lessee is obligated to pay rent to the lessor Lessor disclaims all responsibility for Equipment under lease Ownership of Equipment Lessor retains title to Equipment Equipment Location Location of Equipment throughout lease term Principal location of mobile Equipment 19

20 Key Provisions in Leases Use of Equipment Used for a business purpose Used in accordance with all laws and by competent operators Repairs and Accessions Lessee to maintain Equipment in good condition Accessions Title transferred to lessor Free and clear of all liens Alterations, modifications or additions 20

21 Key Provisions in Leases Fixtures Lessee s agreement that Equipment does not constitute a fixture Not binding on third parties Damage to Equipment and Insurance Replacement value and liability insurance Right to self-insure so long as lessee is not in default under the lease 21

22 Key Provisions in Leases Default and Remedies Events and circumstances constituting a default Right to terminate and require the lessee to pay liquidated damages Lessor under a true lease may retain surplus Return of Equipment Condition of Equipment upon return Deemed month-to-month renewal if not returned Special return provisions for unique Equipment 22

23 Key Provisions in Leases No Subleasing Prohibition on the ability of lessee to assign the lease agreement to another party Exceptions: Lessee is in the business of renting Equipment to third parties Affiliates of lessee Assignments by Lessor Without the consent or notice to any lessee 23

24 Key Provisions in Leases End of Term Purchase and Renewal Options Lessee may: Purchase Equipment Renew the lease Return Equipment Lessee notification of election Lessee not in default Automatic month-to-month renewal Amount of purchase option price All or none of the Equipment Purchase on an as is, where is basis 24

25 Key Provisions in Leases Quebec Clauses English language clause Leasing contract clause

26 Canadian Lease Education Program