The Globe and Mail Report on Business for April 11, 2011 reported that GM was expanding the
availability of lease financing for its vehicles. With developments
such as this, it may be that securitizations of automotive leases
will return in some volume to the securitization marketplace. Each
automotive lease securitization presents the issue of how to deal
with the vehicle permits for the vehicles subject to the
transaction. Because practice differs between Canada and the United
States, there is usually cause to revisit and explain the Canadian
In the United States, there is a government issued
"title" document for each vehicle which records the owner
of the vehicle and liens affecting the vehicle. The similar concept
in Ontario is a "vehicle permit." While a vehicle permit
is commonly relied upon as evidence of ownership, it is not a
"title" document and liens are not recorded against it.
Rather, a lien against a vehicle is recorded against the vehicle
identification number ("VIN") of the vehicle or the name
of the owner in the personal property security system used for
registering liens against all types of personal property. Unlike in
the U.S., a lien cannot be perfected by taking possession of the
Current automotive lease securitizations in Canada typically
require the transfer of the leased vehicles from the originator to
a special purpose entity ("SPE"). The payment streams
under the related leases are also transferred to the SPE. The
administrative reality is that it is not economically practicable
to re-register the vehicle permits for each vehicle in the name of
the SPE. As a compromise, the practice has developed in Canada to
have the originator (which is typically the servicer) sell its
beneficial interest in the vehicles to the SPE and then agree to
hold the vehicle permits in trust in its name as bare trustee for
the benefit of the SPE. In specified circumstances, generally a
servicer termination event, the servicer is required to transfer
the vehicle permits into the name of the SPE or another person
selected by the holders of the relevant asset backed securities.
This obligation of the servicer is supported by appropriate powers
of attorney in the event the servicer fails or refuses to complete
Peter Milligan is Chair of the Banking &
Financial Services Practice Group. His practice focuses on
securitization and structured finance with an emphasis on
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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