Treatment of leases in a debt agreement

Treatment of leases in a debt agreement – vehicle leases, novated leases, own to buy and rented goods.

A lease is a contract where one party (the lessee) agrees to rent property owned by another party (the lessor).  Usually, the lessee will have sole use of the property and the lessor will get regular payments for a specified period. Some leases allow the lessee to become the owner of the property at the end of the lease. Registered Debt Agreement Administrators (RDAAs) should refer to the contract to determine its specific nature.

The way leases are treated in a debt agreement depends on whether the lessee is in arrears (this means they have overdue lease payments). 

1. If the lessee is in arrears, the lessor is a creditor who is owed a provable debt. The lessor will be able to participate in dividends under the debt agreement for this debt. In this case:

• The arrears amount should be included in section D of the explanatory statement as an amount owed.
• The remaining contract amount on the date the Official Receiver accepted the proposal for processing (the NPII date) should be included in section E of the explanatory statement.

2. If the lessee is not in arrears, the lessor generally will not participate in dividends under the debt agreement. The lease should be included in section E of the explanatory statement. The remaining contract amount at the NPII date should be listed as the amount of the debt owing.

Lease debts listed in section E of the explanatory statement do not count toward the unsecured debt threshold amount, however arrears amounts listed in Section D do.

The RDAA should be told if the lease circumstances change during the debt agreement. The RDAA should then consider if a variation to the agreement is required to include any further debt.