The five-year cap on registrations relating to consumer goods
under the Personal Property Security Act
(Ontario)1 (the "PPSA"),
which is unique to Ontario, will be repealed on November 16, 2015.
This change should reduce some of the administrative burden and
overhead costs now imposed on lenders and lessors whose collateral
includes consumer goods.
Section 51(5) of the PPSA now provides that where the collateral
described in a financing statement is or includes "consumer
goods" (defined to include "goods that are used or
acquired for use primarily for personal, family or household
purposes"), the financing statement is deemed to have a
registration period of five years (regardless of its actual term)
unless a shorter period is indicated; and section 51(6) provides
that every financing change statement that extends (i.e., renews)
the registration period for such a financing statement is deemed to
extend the registration period for a five year period that begins
at the time of its registration unless a shorter extension is
indicated. These provisions are reinforced in sections 3(4)(a) and
5(2)(a) of the Minister's Order made under the PPSA (the
"Minister's Order")2 for
new registrations and renewals, respectively. In addition, section
54(2) provides that a fixture filing registered on title to real
property in respect of fixtures that include consumer goods and any
extensions thereof may not have an expiration date later than the
fifth anniversary of the registration date. In other words, any
registration made under the PPSA where the collateral is consumer
goods is currently limited to a registration period of no more than
five years.
While these provisions may not seem problematic at first blush, the
five year cap on consumer goods registrations can prove to be an
administrative headache and a potential trap for administrators of
loan and lease portfolios where the collateral or leased property
includes consumer goods. Consumer contracts for leases or
extensions of credit (such as conditional sales contracts or
chattel mortgages) secured by consumer goods can well extend beyond
five years. If the secured party unwittingly elects a registration
period of more than five years, the financing statement will not be
rejected by the system but it will lapse after five years, leaving
the lender or lessor unsecured for the balance of the registration
period if a dispute ever arises. Even where the registration period
does not exceed five years, the secured party still has to diarize
the expiry date, register the renewal and send the applicable
debtor notice as mandated by the PPSA. In addition to the
administrative costs associated with interim renewals (costs which
are often passed on to the consumer), there is a risk that the
renewal will not be filed in time, jeopardizing the continuous
perfection of the secured party's security interest or, where
another party acquires an interest in the collateral during the
lapse period, possibly the secured party's priority against
other creditors. This risk is especially a concern for businesses
that operate across Canada or are entering into the Ontario market
without an understanding of the jurisdictional differences across
Canadian provinces for personal property legislation: Ontario is
the only jurisdiction in Canada with a limitation on registration
periods for collateral that includes consumer goods.
Recognizing the potential issues that the five-year limit can
create, the Business Law Agenda Stakeholder Panel recommended its
repeal in its June 2015 report to the Minister of Government and
Consumer Services.3 In line with the panel's
recommendation, Schedule 35 to Bill 914, which received
Royal Assent on June 4, 2015, will be proclaimed into force on
November 16, 2015. This legislation repeals sections 51(5) and (6)
outright, removing the deemed five-year cap, and amends section
54(2) to permit expiration dates beyond five years where fixtures
include consumer goods. Conforming amendments will also be made to
sections 3(4) and 5(2) of the Minister's Order. This repeal
will be a welcome change for many businesses and financial
institutions that deal with leases of and loans secured against
consumer goods in Ontario. One provision relating to consumer goods
will not change, however: section 3(1) of the Minister's Order
will still require that financing statements classifying the
collateral as consumer goods set out the principal amount and the
maturity date (or a statement that there is none).
Transition and Next Steps
The amendments do not specify any transitional provisions and are
not stated to be retroactive. Accordingly, existing registrations
relating to consumer goods will for the most part be unaffected
until they are renewed, in which case the renewal term can exceed
five years. However, registrations against consumer goods
erroneously made before November 16, 2015 for terms exceeding five
years will no longer be deemed to expire at the end of five years:
for example, if on June 1, 2014 a furniture retailer had registered
a conditional sales contract for a living room suite for a seven
year term, it will now expire on June 1, 2021, not June 1,
2019.
In recent years, the government has made some encouraging efforts
to amend Ontario's personal property legislation in response to
recommendations of legal and business academics and
professionals.5 While there continue to be certain
Ontario-specific issues that remain with respect to the
PPSA6, amendments such as the repeal of the five-year
cap on consumer goods registrations contribute to harmonization
between the provinces and with the US on secured transaction
matters and better reflect the business realities of secured
parties and consumers.
As this bulletin is intended only as a summary we would recommend
that you review the amendments to the PPSA before they come into
force using our bulletin as a guide.
If you have any questions about the amendments or about what
actions to take to ensure that your security interests remain
perfected, please do not hesitate to contact us. We would be happy
to work with you to ensure the validity, perfection and priority of
your security interests.
1 Personal Property
Security Act, R.S.O. 1990, c. P.10.
2 Minister's Order under the Personal Property
Security Act (available here).
3 Business Law Agenda: Priority Findings &
Recommendations Report, June 2015 (available here), recommendation 4a(vii).
4 Bill 91, Building Ontario Up Act (Budget
Measures), 2015.
5 See, for example, Maria Sagan and Rob Scavone's
bulletin, Where's Waldo: New Ontario PPSA Debtor Location
Rules Finally Coming Into Force.
6 For example, collateral classification in Ontario is
based on a "check the box" system, as compared to other
provinces that use a general collateral description.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2015