Brief(1)
H.B. 2687 relates to Terminal Rent Adjustment Clauses (TRAC).
The new statute clarifies that a lease agreement involving a motor vehicle or trailer does not create a sale or security interest solely because the agreement provides for an increase or decrease adjustment in the rental price of the motor vehicle or trailer based on the amount realized from the sale or other disposition of the vehicle or trailer on termination of the lease. Such commercial leases are known as TRAC leases. The act would be made a part of and supplemental to the Uniform Commercial Code-Leases. The act would clarify existing law and would apply to all court cases brought on or after the effective date of the act.
The act would be effective upon publication in the Kansas Register.
Background
Ed Huddleson III, attorney with Driscoll and Draude law firm, Washington, D.C., submitted written testimony to the House Committee on behalf of Nations Bank, First National Bank of Hutchinson, Transamerica Business, Baystone Financial Group, the American Automotive Leasing Association, and the Equipment Leasing Association. Mr. Huddleson also appeared before the Senate Committee in support of the bill, where he proposed an amendment.
There was no opposition to the bill in either the House or Senate committees.
The Senate Committee amendment ensures the act takes effect immediately in all court cases brought on or after the effective date of the act.
The other amendment would make the effective date of the act upon publication in the Kansas Register.
TRAC vehicle leasing is a common practice that involves the leasing of commercial fleets of motor vehicles by one business to another. In general, a TRAC clause allows an adjustment of the rent either upward or downward based on any difference between the projected and actual value of the vehicle on termination of the lease, thereby creating an incentive to maintain the vehicle properly. TRAC leasing is limited by federal tax law to a commercial business and does not involve leasing to consumers. In recent years there has been some uncertainty as to whether TRAC leases should be treated as "true leases" (a lease under which the lessor is the owner of the vehicle) by the courts when the lessee is in bankruptcy. The purpose of legislation such as H.B. 2687 is to insure that TRAC leases are treated as are all other leases by state courts and for bankruptcy purposes. The bill also is intended to allow Kansas businesses to operate without being at a competitive disadvantage with companies operating in other states that have adopted legislation of this type.
The bill would have no fiscal impact on state operations.
1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/fulltext-bill.html.