Consumer leases

Contributed by SigourneyDrane and current to 27 July 2018

What is a consumer lease?

For the purposes of the NCC, a consumer lease is defined as a contract for the hire of goods by a natural person or a strata corporation under which that person or strata corporation does not have a right or obligation to purchase the goods (see section 169 of the NCC).

A consumer lease allows you to rent an item, such as a TV, washing machine or mobile phone for a certain period of time in exchange for regular rental payments until the term of the consumer lease ends.

A consumer lease may appear to be an attractive option when you do not have the cash to pay for the item, or a more flexible option to purchasing the item outright, however you do not have a right to ownership of the item at the end of the term.

The NCC applies to consumer leases if, when the consumer lease was entered into:

• the goods were hired wholly or predominantly for personal, domestic or household purposes; and
• a charge was or may be made for hiring the goods and the charge, together with any other amount payable under the consumer lease, exceeds the cash price of the goods; and
• the lessor (person offering the goods for hire) is usually in the business of hiring goods or the rental of the goods is incidental to another business of the lessor.

Where a consumer lease contains an option to purchase the goods at the end of the term, it may in fact be a sale by instalments agreement under section 9 of the NCC.

Regulation of consumer leases

Consumer leases are regulated differently to consumer credit contracts.

Under the NCC a consumer lease must be in writing and must be signed by the lessor and the lessee (see section 173 of the NCC).

At a minimum, the consumer lease must contain the following information (see section 174 of the NCC):

• a description of the goods;
• the amount to be paid by the lessee before the goods are delivered;
• the amount of any stamp duty or other government charge (other than on receipts or withdrawals) to be paid by the lessee;
• the amount of any other charges not included in the rental to be paid by the lessee under the consumer lease and a description of those charges;
• the amount of each rental payment to be made by the lessee, the date on which the first rental payment is due and either the dates on which subsequent rental payments are due or the interval between rental payments;
• the number of rental payments to be made by the lessee and the total amount of rent payable;
• a statement of the conditions on which the lessee may terminate the consumer lease; and
• a statement of the liabilities (if any) of the lessee on termination of the consumer lease.

The lessor must give the lessee a copy of the consumer lease within 14 days after the consumer lease has been entered into. At the same time, the lessor must give the lessee a statement in the form prescribed by the Regulations explaining the rights and obligations of a lessee (see section 175 of the NCC).

The alteration of a consumer lease after it has been signed by the lessee is ineffective unless the lessee agrees in writing to that alteration, provided that the alteration does not have the effect of reducing the lessee's liabilities under the existing consumer lease (see section 174A of the NCC).

At a minimum, the lessor must provide the lessee with yearly statements of account (see section 175C of the NCC), however the lessee can also a request a statement of account at any time (see section 175E of the NCC).

Where a lessee has requested a statement of account, the lessor must respond:

• within 14 days if the information requested is less than a year old; or
• within 30 days if the information requested is more than a year old.

The NCC does not apply to (see section 171 of the NCC):

• leases with a term of four months or less;
• leases for an indefinite period; and
• any other leases excluded by ASIC or the Regulations.

When can a lessee terminate a consumer lease?

Where the goods have not been provided, a lessee can terminate a consumer lease by giving written notice to the lessor if (see section 178A of the NCC).

Where the goods have been provided, a lessee can terminate a consumer lease at any time before the end of the term by returning the goods to the lessor during normal business hours and paying the amount outstanding under the consumer lease (see section 179 of the NCC).

A lessee can request a statement of the amount required to terminate the consumer lease as at a particular date (see section 179A of the NCC). The request must be made in writing and the statement from the lessor must contain the following information:

• the amount required to terminate the consumer lease;
• a statement to the effect that the amount required to terminate the consumer lease depends on the date of payment;
• a statement to the effect that the lessee has no right to own the goods;
• a statement to the effect that the lessee must return the goods to the lessor by a specified date; and
• any other matters prescribed by the Regulations.

The statement must be provided within seven days of the request.

When can a lessor repossess goods?

A lessor can give a lessee at least 30 days' written notice of its intention to repossess the goods if the lessee has defaulted in the performance of its obligations under the consumer lease (section 178(1) of the NCC).

Under section 178(2) of the NCC, a lessor is not required to provide such notice where:

• the term of the lease has expired;
• the lessor believes on reasonable grounds that the lessee has disposed of the goods or intends to dispose of the goods;
• the lessor has made reasonable attempts to locate the lessee and has been unsuccessful in doing so;
• the lessee is insolvent; or
• the court authorises the lessor to take possession of the goods.

A lessor or an agent of a lessor is not permitted to enter residential property for the purposes of repossessing the goods unless authorised to do so by the court or the occupier has consented in writing to the entry (provided that the occupier has first been informed in writing about section 179N of the NCC)).

Enforcement of consumer leases

A lessor must not begin enforcement proceedings against a lessee in relation to a consumer lease unless (see section 179D of the NCC):

• the lessee has defaulted in the performance of its obligations under the consumer lease;
• the lessor has given the lessee a default notice, which notice specifies that the lessee has 30 days from the date of the notice to rectify the default; and
• the default is not rectified within the 30 day period.

The default notice contain a prominent heading at the top specifying that it is a default notice and must specify the following information (see section 179D(2) of the NCC):

• the default;
• the action required to rectify the default;
• the period for rectifying the default;
• the date after which enforcement proceedings may begin and, if relevant, the date after which repossession of the goods may begin;
• the information prescribed by the Regulations about the lessee’s right to:
  • give a hardship notice;
  • give a postponement request;
  • make an application to the court;
• the information prescribed by the Regulations about:
  • the Australian Financial Complaints Authority (AFCA) scheme; and
  • the lessee's rights under that scheme;
• that a subsequent default of the same kind that occurs during the period specified for remedying the original default may be the subject of enforcement proceedings without further notice if it is not remedied within the period;
• that, under the Privacy Act 1988 (Cth), a credit reporting body may collect and hold default information in relation to the default; and
• any other information prescribed by the Regulations.

A lessor is not required to give a default notice or wait until the 30 day period in the default notice has expired before commencing enforcement proceedings if (see section 179D(3) of the NCC):

• the lessor reasonably believes that it was induced by fraud on the part of the lessee to enter into the consumer lease;
• the lessor believes on reasonable grounds that the lessee has disposed of the goods or intends to dispose of the goods;
• the lessor has made reasonable attempts to locate the lessee and has been unsuccessful in doing so;
• the lessee is insolvent; or
• the court authorises the lessor to begin enforcement proceedings.

If the lessor reasonably believes that the default is not able to be rectified then the default notice need only specify the default and the lessor may commence enforcement proceedings after the 30 day period has expired (see section 179D(4)).

Applying for hardship

A lessee has the right to request changes to the consumer lease on grounds of financial hardship (see section 177B of the NCC). The lessee may give the lessor a hardship notice either orally or in writing to the effect that the lessee is unable to meet their obligations under the consumer lease.

The lessor must respond to the hardship notice in writing within 21 days of receiving the hardship notice.

The lessor may request information from the lessee to assist in deciding whether the lessee is or will be unable to meet their obligations under the lease or how to change the consumer lease of the lessee is or unable to meet those obligations. The lessee must comply with any request made by the lessor.

Before the expiry of the 21 day period, the lessor must give the lessee notice:

• recording the fact that the parties have agreed to change the consumer lease; or
• recording the fact that the parties have not agreed to change the consumer lease and the reasons why. The lessor must also include the name and contact details of the Australian Financial Complaints Authority (AFCA) scheme and the lessee's rights under that scheme.

If the lessee has given a hardship notice before or after the lessor gives a default notice then the lessor must not begin enforcement proceedings against the lessee unless the lessor has responded to the hardship notice in the manner specified above and the period of 14 days (starting on the date the lessor responds to the hardship notice) has expired (see section 179F of the NCC).

Regardless, the lessor may take possession of the goods if the lessor reasonably believes that the lessee has removed or disposed of the goods, or intends to remove or dispose of them or urgent action is necessary to protect the goods (see section 179F of the NCC).

End of lease statement

Under section 175H of the NCC, a lessor must give the lessee an end of lease statement at least 90 days before the end of the consumer lease.

The end of lease statement must contain the following information:

• the date on which the consumer lease expires;
• a statement to the effect that the goods must be returned and the date on which the goods much be returned;
• the total amount that the lessee will pay for the consumer lease;
• where the goods are to be collected by the lessor, a statement on how the collection can be arranged;
• where the goods are to be returned by the lessee, a statement on how and where the goods are to be returned;
• the amounts the lessee will have to pay if the goods are not returned;
• a statement to the effect as to whether the lessor is prepared to negotiate the sale of the goods;
• where the lessor is prepared to negotiate the sale of the goods, the estimated price and the contact person to negotiate the sale of the goods.