EVERGREEN/AUTOMATIC RENEWAL CLAUSES

 

According to ELFAONLINE.ORG, here is the breakdown:

New York and Rhode Island all have laws requiring lessors in commercial leases of personal property (equipment) to give NOTICE to their lessees that a lease will automatically renew:

Certain provisions of leases of personal property inoperative unless notice thereof given to lessee. No provision of a lease of any personal property which states that the term thereof shall be deemed renewed for a specified additional period unless the lessee gives notice to the lessor of his intention to release the property at the expiration of such term, shall be operative unless the lessor, at least fifteen days and not more than thirty days previous to the time specified for the furnishing of such notice to him, shall give to the lessee written notice, served personally or by mail, calling the attention of the lessee to the existence of such provision in the lease . NY General Obligations, Article 5, Title 9, Sections 5-901

... every lessor of personal property under a written lease containing an automatic lease renewal shall give written notice to the lessee not more than ninety (90) nor less than forty-five (45) days prior to the expiration of the lease term. The notice shall state the date upon which the lease term will expire and shall advise the lessee that the lease will be automatically renewed unless the lessee gives written notice to the contrary . RI Title 6: Commercial Law Section 6-13-14

 

Louisiana requires the Lease to contain conspicuous disclosure of automatic renewal provisions:

Any person, firm, or corporation engaged in commerce that sells, leases, or offers to sell or lease, any products or services to a consumer pursuant to a contract, when the contract automatically renews unless the consumer cancels the contract, shall disclose clearly and conspicuously how to cancel the contract in the initial contract, contract offer, or with delivery of products or services. Louisiana Revised Statutes 9:2716 (don't be fooled by the use of "consumer" - it applies to business lessees)

Wisconsin requires both:

...if a business contract that is entered into, modified, or renewed after May 1, 2011, provides that the contract will be automatically renewed or extended for an additional period unless the customer declines renewal or extension, and the duration of the additional period is more than one month, the seller shall do one of the following:

1. At the time the customer enters into the contract, present to the customer a copy of a form including the disclosures required under par. (b) and obtain the customer's signature on the form.

2. Include the disclosures required under par. (b) in the contract in a conspicuous manner and obtain the customer's initials on the contract on a page on which a disclosure appears.

(b) A disclosure required under par. (a) shall contain all of the following:

1. A statement that the contract will be renewed or extended unless the customer declines renewal or extension.

2. A statement indicating the duration of the additional contract period that would result from an automatic renewal or extension period.

3. A statement indicating whether an increase in charges to the customer will apply upon an automatic renewal or extension.

4. A description of action the customer must take to decline renewal or extension.

5. The date of the deadline for the customer to decline renewal or extension.

(c) If a seller fails to comply with par. (a), an automatic renewal or extension provision in the contract is not enforceable, and the contract terminates at the end of the current contract term.

(d) Paragraph (a) does not apply to a contract in effect on May 1, 2011, or to subsequent renewals of such a contract.

(3) Notice required. If a business contract that has an initial term of more than one year provides that the contract will be automatically renewed or extended for an additional term of more than one year, unless the customer declines renewal or extension, and the deadline for the customer to decline renewal or extension of the contract is more than 60 days after May 1, 2011, the provision is not enforceable against the customer and the contract will terminate at the end of the current contract term unless the seller provides to the customer, at least 15 days but not more than 60 days before the deadline for the customer to decline renewal or extension, a written notice containing all of the following:

(a) A statement that the contract will be renewed or extended unless the customer declines renewal or extension.

(b) The deadline for the customer to decline renewal or extension.

(c) A description of any increase in charges to the customer that will apply after renewal or extension.

(d) A description of action that the customer must take to decline extension or renewal. Wisconsin Statutes 134.49:

There is a lot to talk about here, but not that many of you (we think) are affected by TPD. It may be of more interest to the lawyers and, as always, your feedback is welcome. We have not researched this matter in great depth, but this is what we know (and think) from recent research and a bit of thought:

 

A while ago a very good lawyer in a state with tough usury laws told us to "just add a time price differential clause" and not worry about usury. TPD is an exception to interest rate limitations in several states (so far as we know, only where statutorily enacted, but that is not to say it might not work in court in any state). Under the TPD doctrine, a finance charge paid for the purchase of good from a vendor is not "interest." It is an addition to the purchase price paid for a financed sale, as opposed to a lower list price for a cash sale.

 

The elements of TPD are sometimes set out in statutes and otherwise by judges and run like this:  

All good, right? It is generally required, or at least highly advisable, that the retail installment sale document under which the buyer will pay the purchase price (including TPD) recite that the buyer has been offered and chose as above.

 

What is wrong with just adding this into your EFA or buck-out Lease? Well.....what did we say about buyer and vendor? What happens if you just add the clause in your loan document?

1.  If the document is generated and signed by the vendor, then TPD would seem legitimate. Therefore, TPD would seem OK if the vendor signs up the customer and assigns the RISC (retail installment sale contract - there are many initials used like ISC, RSC, etc., but we like this one because we are inherently nasty about these things).

BUT that means the lender/lessor is buying a RISC and in several states (Florida) the vendor must be LICENSED to buy RISCs.  RISCY Business.  

 

2.  If the vendor merely refers the customer to the lender/lessor, and the contract is between lender (enough with the "lender/lessor", y'all know what I mean) this doesn't seem very different in substance.

BUT is this any different from a situation where the customer simply approaches the lender and asks to borrow money to purchase equipment from a vendor with whom the lender does not have a program in place? In other words, traditional non-vendor equipment finance?

 

3.  Well, so what? Why not recite that the customer could have bought for a lower price if it paid cash? It's true! If we add the total loan payments and compare them to the list price....

SO WHAT? Products liability, sales tax questions, language in the EFA or Lease about not being a seller, UCC merchant status....

AND the question of whether it works anyway. For this one, we have a case that struck terror in the hearts of many and was, in fact, a good example of putting all your usury-exemption eggs in one TPD basket (sorry, that was really bad): Kinerd v. Colonial Leasing Co., 800 S.W.2d 187 (Tex. 1990). No Oregon choice of law, no usury savings clause, just a reliance on a TPD clause that the court chewed up and spat out.

 

We aren't saying don't do it or it never works. We are saying the toughest thing we ever say to our friends. Think about it.