As our readers know, Cassels Brock is an active participant in the Equipment Leasing and Finance Association (“ELFA”) and an annual attendee of its legal forum. At the most recent forum, Bonnie Michael of Volvo Financial Services USA gave a presentation on the California Heavy-Duty Vehicle Greenhouse Gas (GHG) Emission Reduction Regulation (the “regulation”), which came into effect on January 1, 2010 and was amended on January 11, 2012. Although it is from California, the regulation may have a direct extra-territorial impact upon Canadian lessors as it affects any lessor who leases certain types of motor vehicles that are used on Californian roads.
The regulation requires that certain modifications be made to all Class 7 or Class 8 HD tractors that pull 53 foot or longer box type trailers and 53 foot or longer box type trailers that are pulled by HD tractors (collectively, the “Subject Vehicles”). Under the regulation, the “owner” of the Subject Vehicles must comply with the California Department of Motor Vehicles’ environmental requirements. The regulation defines an “owner” as “the registered owner of the tractor or trailer by the California Department of Motor Vehicles or its equivalent in any other state, province or country.” Accordingly, if a leasing company is registered as the owner of the Subject Vehicles in any Canadian province or territory and the lessee uses the Subject Vehicles on Californian roads, then that leasing company is subject to the regulation regardless of whether the lessor itself does business in California.
The regulation provides limited exemptions for lessors who satisfy certain disclosure obligations. Specifically, a lessor will not be deemed to be an owner if it provides the lessee with specific statements as defined and set out in the regulation. In order to qualify under this exemption, the lessor must demonstrate that it has provided the lessee with written notice that clearly informs the lessee about the requirements of the regulation.
The consequences for non-compliance with the regulation are stiff. Owners who fail to comply with the regulation or qualify under an exemption face a fine of up to $1,000 per day and/or imprisonment for a term of not more than 6 months. The notice requirement period is retroactive to January 1, 2010 (when the regulation first came into effect). Needless to say, the per diem penalty could be quite large if there has been non-compliance for a significant period of time. At the legal forum, no one was aware of any action being taken under the regulation but, not surprisingly, participants were concerned.
As a consequence of this regulation, if a Canadian lessor is leasing Subject Vehicles to a Canadian or American lessee who uses such vehicles in California then that lessor must provide the lessee with the prescribed statements. Therefore, lessors should consider whether to include these specific provisions in their lease documentation, or in some other demonstrative manner, and implement that disclosure policy accordingly so that all lessees are made aware of the regulation.
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