Canada Small Business Financing (Establishment and Operation of Capital Leasing Pilot Project) Regulations (SOR/2001-527)

Fees

13 Every capital lease is subject to the condition that no fee or charge is payable by a lessee other than

• (a) the registration fee referred to in subsection 14(1);

• (b) the administration fee referred to in subsection 14(2); and

• (c) any other fee or charge authorized by these Regulations.

• 14 (1) A registration fee in respect of a capital lease shall be paid by the lessor to the Minister when the capital lease is submitted for registration. This fee, which is 2% of the financed cost of the equipment, may be included in the total financing amount of the capital lease.

• (2) An administration fee in respect of a capital lease shall be paid by the lessor to the Minister. It is calculated at the end of each month at the annual rate of 1.25% applied to the outstanding balance of the capital lease minus the present value of the lesser of

  • (a) the residual value of the equipment set out in the registration form referred to in subsection 12(1), and

  • (b) the bargain purchase option price of the equipment set out in the capital lease.

• (3) The administration fee is payable quarterly, within two months after the end of each quarter.

• (4) With each payment under subsection (3), the lessor shall submit to the Minister a statement that substantiates the basis on which the payment was calculated.

• (5) When the lessor is unable to provide one or more of the statements required by subsection (4) in respect of a year, the Minister shall notify the lessor

  • (a) that for that year, the lessor may make the payments referred to in subsection (3), except the payment for the last quarter, on the basis of estimates of the amounts payable; and

  • (b) that for that year, the lessor shall submit the statement required by subsection (6) rather than the statements required by subsection (4).

• (6) On or before June 1 following a year in respect of which a lessor makes the payments referred to in subsection (5), the lessor shall pay any amount owing for the year, or claim any overpayment for the year, and submit to the Minister a statement that substantiates the basis on which the amount of the administration fee was calculated.

• (7) On application by a lessor within one year after a capital lease registered with the Minister in accordance with these Regulations is entered into, the Minister shall

  • (a) if the lessor has not provided to the lessee all of the equipment that is the subject of the capital lease, refund to the lessor that portion of the registration fee paid that is attributable to the portion of the equipment and subtract the value of that portion of the equipment from the total financing amount of the capital lease; or

  • (b) if the lessor determines that the capital lease is not in compliance with the requirements of these Regulations, refund to the lessor the registration fee and the administration fee and delete the total financing amount of the capital lease from the registry, which terminates the Minister’s liability in respect of the capital lease.

• (8) The lessor shall not charge the lessee for the administration fee except through the imposition of an annual imputed rate of interest.

Maximum Annual Imputed Interest Rate

15 The maximum annual imputed rate of interest used to calculate the scheduled payments on a capital lease shall not exceed the aggregate of 13.25% and the rate of interest on Government of Canada bonds.

Additional Amounts Payable by Lessee

16 A lessor may require a lessee to pay, in addition to the registration fee referred to in subsection 14(1) and the administration fee referred to in subsection 14(2),

• (a) any charge to register the lessor’s security interest or to publish their rights;

• (b) any premium paid by the lessor in respect of a capital lease under a life or disability insurance policy that provides that a benefit is or may become payable to the lessor;

• (c) any charge by the lessor for the handling of a cheque presented or issued by a lessee that is subsequently returned because there are not sufficient funds, if stipulated in the capital lease;

• (d) any cost related to the inspection of the equipment, if stipulated in the capital lease;

• (e) any fee for changes to the capital lease requested by the lessee;

• (f) any expense incurred by the lessor to preserve their security in the event of default;

• (g) any fee or charge related to maintaining the equipment in good condition, if stipulated in the capital lease; and

• (h) any premiums for equipment liability, physical damage and replacement insurance, if required under the capital lease.

Designation of Lessors

17 The Minister is authorized to designate organizations as lessors.

Maintaining Status as Lessor

18 A lessor that is a leasing company or a lease funder shall, in order to maintain their status as a lessor, provide proof to the Minister on an annual basis that they

• (a) maintain a rating of “BBB” or better issued by a Canadian bond rating agency; or

• (b) participate in a securitization program approved by a Canadian bond rating agency.

Due Diligence Requirements

19 Before entering into and administering a capital lease, the lessor shall apply the same due diligence and business procedures as those applicable to a capital lease of the same amount that is not subject to these Regulations, including

• (a) obtaining credit references or conducting a credit check on the lessee;

• (b) completing an assessment of the ability of the lessee to pay, taking into account all other financial obligations of the lessee;

• (c) providing for a term similar to the term of a capital lease of the same amount that is not subject to these Regulations; and

• (d) in the case of used equipment, substantiating in writing the fair market value and economic life of the equipment on the day on which the capital lease is entered into.

Payment Terms

• 20 (1) A capital lease shall set out the total financing amount, the payment terms, the frequency of the scheduled payments and the date on which the capital lease is entered into. It shall set out either the bargain purchase option price or the residual value of the equipment, as the case may be.

• (2) If the term of a capital lease in good standing is less than the maximum period specified in section 5, the lessor may renew it for one or more additional terms, at an annual imputed rate of interest that does not exceed the maximum annual imputed rate referred to in section 15 as of the renewal date, to an aggregate maximum term of 10 years, including all renewal terms, beginning on the day on which the capital lease is entered into.

Revision of Payment Terms

• 21 (1) A lessor and a lessee may, at any time, agree to revise the payment terms of a capital lease.

• (2) If a lessor and a lessee agree to revise the payment terms of a capital lease by extending the term beyond the maximum period specified in section 5, it is a condition of the Minister’s liability under these Regulations that the approval of the Minister shall be obtained in writing prior to the extension. The Minister shall approve the extension if it is likely to decrease the risk of default by the lessee on the capital lease.

Improvements

• 22 (1) A lessor and a lessee may, at any time, agree to improve the original equipment that is the subject of a capital lease. The improvements do not include the replacement of the original equipment in its entirety.

• (2) If a lessor and a lessee agree to improve the original equipment that is the subject of a capital lease and to amend the capital lease, the Minister’s liability under these Regulations continues if the capital lease is amended accordingly and if

  • (a) the capital lease as amended has a term that does not extend beyond the maximum period specified in section 5;

  • (b) the annual imputed rate of interest used in the calculation of the scheduled payments is the same as the annual imputed rate of interest used in the original capital lease;

  • (c) the lessor notifies the Minister in writing of the improvements made to the equipment within three months of the day on which the amendment to the capital lease was made, and provides the Minister with the following information, namely,

    • (i) the detailed cost of the improvements,

    • (ii) a detailed calculation of the revised payments,

    • (iii) the additional cost of the equipment that has been financed, and

    • (iv) the new outstanding balance of the capital lease; and

  • (d) the lessor sends to the Minister, with the notice referred to in paragraph (c), an additional registration fee that is calculated on the basis of the additional cost of the equipment that has been financed.

Forms of Security

• 23 (1) Subject to subsection (2), a lessor shall, when entering into or amending a capital lease, register a security interest in the leased equipment, within the time and in accordance with the form prescribed under the applicable provincial law.

• (2) Where applicable, the lessor shall make a publication of their rights in the registry office within the time and in accordance with the form prescribed in the province to set up their rights against any third party.

24 A lessor may take additional security in the assets of the lessee’s small business.

25 The lessor may release any additional security if the capital lease is in good standing.

Guarantees and Suretyships

• 26 (1) A lessor may, in addition to the forms of security referred to in sections 23 and 24, take one or more unsecured personal guarantees or suretyships for an amount that does not exceed the aggregate of

  • (a) 25% of the total financing amount of the capital lease,

  • (b) the interest on any judgment against the surety,

  • (c) taxed costs for, or incidental to, legal proceedings against the surety, and

  • (d) legal fees and disbursements, other than the costs referred to in paragraph (c), and other costs incurred by the lessor for services rendered by persons other than their employees for the purpose of legal proceedings against the surety.

• (2) If a lessor takes more than one personal guarantee or suretyship, they shall state that the aggregate liability of the sureties may not exceed the aggregate amount referred to in subsection (1).

27 A lessor may, in addition to any security or guarantee or suretyship referred to in sections 23, 24 and 26, take one or more secured or unsecured corporate guarantees or suretyships.

28 A lessor may release a guarantor or surety from a guarantee or suretyship only if a capital lease is in good standing and the lessee has paid at least 50% of the total financing amount of the capital lease.

29 A lessee may, at any time with the consent of the lessor, replace a guarantee or suretyship with security in any assets of the small business or with another guarantee or suretyship, if the value of the replacement security, guarantee or suretyship is equal to or greater than the value of the original guarantee or suretyship but does not exceed the maximum provided for in section 26.

Non-Compliance

• 30 (1) The Minister is not liable to make any payment to a lessor in respect of any loss sustained as a result of lessees’ defaults on all capital leases entered into by the lessor, if the lessor has not paid the administration fee referred to in subsection 14(2).

• (2) Despite subsection (1), the Minister shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 44(7), sustained as a result of lessees’ defaults on all capital leases entered into by the lessor if

  • (a) the non-compliance is inadvertent; and

  • (b) the administration fee is paid within 90 days after the day on which notice of the non-compliance from the Minister is received at the place of business of the lessor.

• 31 (1) The Minister is not liable to make any payment to a lessor in respect of any loss sustained as a result of a lessee’s default on a capital lease if

  • (a) the capital lease provides for a matter referred to in section 4;

  • (b) the due diligence requirements referred to in section 19 are not met;

  • (c) the requirements under section 23 are not met; or

  • (d) the requirements under paragraph 44(4)(a) are not met.

• (2) Despite subsection (1), if the non-compliance referred to in any of paragraphs (1)(a) to (d) is inadvertent, the Minister shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 44(7), sustained on the portion of the total financing amount of the capital lease that relates to equipment and that is in compliance with these Regulations.

• 32 (1) The Minister is not liable to make any payment to a lessor in respect of any loss sustained as a result of a lessee’s default on a capital lease if the requirements set out in sections 26 to 29 in respect of guarantees or suretyships are not met in respect of the capital lease.

• (2) Despite subsection (1), the Minister shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 44(7), sustained as a result of a lessee’s default on a capital lease if

  • (a) the non-compliance is inadvertent and the loss was not affected by it; and

  • (b) the aggregate amount recovered from the realization of personal guarantees and suretyships, if any, does not exceed the aggregate of the amounts referred to in paragraphs 26(1)(a) to (d).

• 33 (1) The Minister is not liable to make any payment to a lessor in respect of any loss sustained as a result of a lessee’s default on a capital lease, if

  • (a) the term of the capital lease is longer than the maximum period specified in section 5 or the period approved under subsection 21(2);

  • (b) a fee or charge is payable, other than a fee or charge referred to in section 13, 14 or 16; or

  • (c) the annual imputed rate of interest used to calculate the scheduled payments in respect of the capital lease is greater than the maximum annual imputed rate of interest referred to in section 15.

• (2) Despite subsection (1), the Minister shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 44(7), sustained as a result of a lessee’s default on a capital lease if

  • (a) the non-compliance is inadvertent and the loss was not affected by it; and

  • (b) the lessor has reimbursed the lessee for any resulting overcharges and has otherwise remedied the non-compliance.

34 Despite section 41, if a lessor does not provide a report as required by section 40 until after the time required by that section and the non-compliance is inadvertent, the Minister, after receiving the report, shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 44(7), sustained as a result of a lessee’s default on a capital lease to which the report relates.

Transfer of Capital Leases at the Request of the Lessee

• 35 (1) When a capital lease is transferred by a lessor to another lessor at the request of the lessee, the parties to the transfer shall notify the Minister of the transfer in the form referred to in subsection (4).

• (2) After the transfer referred to in subsection (1), the Minister is liable to pay to the transferee the amount of any eligible loss, calculated in accordance with subsection 44(7), sustained as a result of a lessee’s default on the capital lease if

  • (a) the Minister’s liability under section 7 in relation to the remaining capital leases of the transferor does not, as a result of the transfer, exceed the amount already paid by the Minister to the transferor, if any; and

  • (b) the total number of capital leases transferred by the transferor under this section, for the duration of these Regulations, does not exceed the greater of 20 and 1% of the number of capital leases entered into by the transferor during that period.

• (3) The Minister shall determine whether the requirements set out in subsection (2) have been met and shall notify both lessors of the determination.

• (4) The lessee and both the transferor and transferee shall sign a form which includes the registration number assigned to the capital lease by the Minister and the lessee’s acknowledgement that the lessee requested the transfer.

• (5) A transfer of a capital lease shall be registered or published in accordance with applicable provincial law.