Canada: Repealing the Five Year Cap On Ontario PPSA Registrations For "Consumer Goods" Collateral: Good News For Lenders And Lessors

Last Updated: November 26 2015
Article by Jennifer Babe

Ontario Bill 91, An Act to implement Budget measures and to enact and amend various Acts, received Royal Assent on June 4, 2015. The official short title of the legislation is the Building Ontario Up Act (Budget Measures), 2015 (the "Budget Measures Act"). During the week of October 19, 2015, Ontario announced that Schedule 35 to the Budget Measures Act will be proclaimed into force on November 16, 2015.

Schedule 35 amends the Ontario Personal Property Security Act (the "PPSA") to repeal the five year cap imposed on registrations of financing statements and on notices of security interests filed against title to real property where the collateral is, or includes, consumer goods. "Consumer goods" are defined in the PPSA as goods used by the debtor for family or household purposes. Ontario is the only province in Canada with this provision.

Presently, the PPSA imposes a five year cap for registrations against consumer goods collateral, as follows:

Consumer goods

51(5) Despite subsection (1), if the collateral described in a financing statement is or includes consumer goods, the financing statement shall be deemed to have a registration period of five years, unless a shorter registration period is indicated on the financing statement or unless the registration period is extended by the registration of a financing change statement under subsection 52 (1).

Idem

51(6) Every financing change statement [renewal] extending the registration period of a financing statement described in subsection (5) shall be 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 on the financing change statement.

In addition, the PPSA also provides that where goods are affixed to real property, the secured party may register notice of its security interest in such goods against title to the subject lands. For example, the secured party might be financing the installation of new, built-in kitchen appliances, a hot tub, or similar other home improvements. These fixtures notice filing rules in the PPSA read as follows:

Notice in land registry office

54. (1) A notice of security interest, in the required form, may be registered in the proper land registry office, where,

  1. the collateral is or includes fixtures or goods that may become fixtures or crops, or minerals or hydrocarbons to be extracted, or timber to be cut; or
  2. the security interest is a security interest in a right to payment under a lease, mortgage or charge of real property to which this Act applies.

Consumer goods, registration period

54(2) Where the collateral is consumer goods, a notice registered under clause (1) (a) or an extension notice registered under subsection (3), as the case may be, shall set out an expiration date, which date shall not be later than the fifth anniversary of the date of registration and the notice or extension notice is effective until the end of the expiration date.

Idem

54(3) A registration to which subsection (2) applies may be extended before the end of the registration period by the registration of an extension notice.

Under the present PPSA rules with the five year registration cap, lenders or lessors with consumer goods transactions for a term of more than five years have to:

  1. make an initial registration of a financing statement and, if applicable, notice of security interest on title;
  2. mail the debtor the mandatory copy of that initial  PPSA registration; 
  3. diarize the renewal date for a future date so that any renewal in itself does not extend the registration life for more than five years;
  4. file the  PPSA renewal and, if applicable, notice on title renewal; and
  5. mail the debtor the mandatory copy of the renewal  PPSA registration.

All of this contributed to the overhead costs of the lender and lessor as they were required to create renewal diary systems, and have staff effect two sets of registrations and send two notices to the debtor.

Schedule 35 of the Budget Measures Act amends the PPSA to repeal the five year registration cap in both the financing statement registration and in the fixture filing on title for the goods. The relevant provisions read as follows:

  1. Subsections 51 (5) and (6) of the Personal Property Security Act are repealed.
  2. Subsection 54 (2) of the Act is repealed and the following substituted:

Consumer goods, registration period

(2) Where the collateral is consumer goods, a notice registered under clause (1) (a) or an extension notice registered under subsection (3), as the case may be, shall set out an expiration date, and the notice or extension notice is effective until the end of the expiration date.

As of November 16, 2015, the lender or lessor will select the desired registration length for the subject transaction, without any registration length limitation, thus allowing consumer goods and other classes of collateral to be treated uniformly in the service centre's operations.

Many clients register for the term of the deal plus an additional year.  This allows for: over-holding of leased goods; settlement of any excess wear and tear charges; and final payments to clear, without the PPSA registration lapsing and leaving the lender or lessor unsecured before these final deal matters are completed.

These amendments do not affect the existing Minister's Orders passed pursuant to the PPSA, which provide the mandatory content in a financing statement for consumer goods collateral, as follows:

section 3(1) 
(i) if the collateral is classified as consumer good, the principal amount; and
(j) if all the collateral is classified as consumer goods, the maturity date, or if there is no fixed date of maturity, an indication that there is no fixed maturity date.

As such, for consumer goods financing or leasing, the financing statement will still have to include an indication of the term of the transaction, and the notice of security on title must still disclose the expiry date. For Ontario's electronic land registration documents, the expiry date may be entered in "Statement 61" in the form for filing this notice on title.

Schedule 35 does not provide any transition rules for this change. The Budget Measures Act does not provide that this repeal is to be retroactive in effect. As such, the repeal will be effective as of November 16, 2015 and onwards, which is the day these provisions will be proclaimed into force. We may therefore anticipate that:

  1. if your registration for consumer goods is currently compliant with the five year cap, and the repeal goes into effect part way through the registration life of this registration, there is no impact. The lender or lessor will likely not do anything until its diary system for renewals triggers the notice to file the renewal. In short, the lender or lessor is unlikely to add to its overhead costs to track down those affected Ontario consumer goods  PPSA registrations. Rather, it will likely let its systems for tracking renewals continue as they are, and deal with renewals as they arise. This also avoids conducting renewals now, when a consumer may exercise his/her right to prepay under fixed credit agreements; and
  2. if your registration for consumer goods currently offends the five year cap (i.e. being filed for a registration term of more than five years) and the repeal goes into effect part way through the term, there is likely no impact for the lender or lessor. The five year cap was only a deeming rule in the legislation. Nothing in the Ontario  PPSA computer system tracked or altered a filing for consumer goods that was done for more than five years.

While in the second situation above, the lender or lessor was outside the PPSA five year cap rule, there is an argument that as of November 16, 2015, the registration error ceases to be applicable for any disputes arising after that date.

In Ally v Allesandro, 2011 ONSC 6721, the Court held, based on prior case law, that priority issues under the PPSA are to be resolved as of the time when the respective interests came into conflict, or on the date a secured party repossessed the goods. In 2010, the Ontario purchase-money security interest ("PMSI") rule on perfection within 10 days of the debtor obtaining possession of the goods was amended to provide for 15 days. In this case, Ally had registered on the 11th day when the PMSI rule was 10 days, but repossessed the goods in January 2011 when the PPSA rule provided 15 days for registration of a PMSI interest. The Court applied the 15 day rule in effect on the date of Ally's repossession.

In short, the repeal of the five year cap is indeed good news for lessors and lenders of consumer goods in Ontario, as it will allow for simpler portfolio administration, and put an end to an added overhead cost.

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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