A client recently repossessed several vehicles due to multiple lease defaults and discovered that liens had been registered on title under the Repair and Storage Liens Act (the “RSLA”) and the Personal Property Security Act (the “PPSA”) by an organization that finances vehicle repairs.
It was quite concerning when reviewing the Agreements that the lessees signed. The predatory rate of interest on these Agreements ranged from 30% to 40% per annum. Good luck trying to convince a Court that you’re entitled to that!
These Agreements are entered into when someone takes out a loan for vehicle repairs that they can’t afford. It appears that no due diligence on the part of the lender is conducted when entering into these agreements.
The repairer (in the same Agreement) then transfers their non-possessory lien rights under the RSLA to the lender financing the repair. The lender then takes it one step further and registers liens under the PPSA.
The lender will then attempt to repossess the vehicle if there is a default on the Agreement. In our case, our defaults occurred first, and our client go the vehicles first.
The Court of Appeal has made it clear that these types of lenders are not lien claimants, and that a repairer’s lien rights cannot be transferred to them or at all.
The Court of Appeal in the decision of Connolly v. AdvantageWon Inc., 2015 ONCA 709, found that:
“A lien under Parts I and II of the RSLA arises by operation of statute, not by contract. For a valid lien to arise, a lien claimant must satisfy the requirements of the RSLA.”
Additionally, the Court of Appeal in the matter of SG Air Leasing Ltd. v. Inchatsavane Company (Proprietary) Ltd., 2015 ONCA 440 found that the Appellant (the lender) was not entitled to a repairer’s non-possessory lien under the RSLA solely on the basis that it advanced funds to finance the costs of aircraft repairs carried out by third parties.
Section 12(1) of the RSLA states:
A non-possessory lien is discharged and cannot be revived as an interest in the article,
- upon payment to the lien claimant of the amount of the lien claimed.
A repairer cannot transfer or assign its non-possessory lien rights to a lender because there are no rights to transfer or assign because their lien is discharged upon the payment by the lender to the repairer.
These vehicles in question are leased. The lessees sign these Agreements with the lender claiming that they have the vehicle owner’s consent to enter into these Agreements. Obviously, they do not, and be entering into these types of Agreements, constitutes a breach of the Lease Agreements with our client.
As a result of the above, not only does this lender have no rights to register liens under the RSLA, but it also means that they do not have the right to register liens under the PPSA either, because the lessees signed claiming they had the consent of the owners, which they did not.
The only option for the lender appears to be pursuing the lessee for breach of contract, and nothing more.
A repairer cannot transfer its lien rights under the RSLA to a lender who pays for those repairs, because no lien rights exist, because they have been discharged upon payment by the lender and cannot be revived for any reason.
Murray Brown, Licensed Paralegal