Mortgages, consumer leases and other finance products

A ‘consumer lease’ is defined in the NCC as a contract for the hire of goods by a person for a specified time at a specified rental under which they have no right or obligation to purchase the goods (s 169 NCC). Consumer leases are regulated by Part 11 of the NCC.

If the lease contains an option or right to purchase the goods, it may be a ‘sale by instalments’ agreement under section 9 of the NCC, and thus potentially be a regulated credit contract and not a consumer lease.

The NCC does not apply to leases with fixed periods of four months or less (s 171(1)) or to leases for indefinite periods unless the criteria in section 171(1A) of the NCC apply. The NCC (s 171(2)) also does not apply to goods hired by an employee in connection with their remuneration or other employee benefits.

Section 172 of the NCC provides that where a party claims that the NCC applies to a consumer lease, and that it was entered into for personal purposes, it is presumed to be so unless the contrary is established. This is consistent with the equivalent provisions of the NCC in respect of credit contracts.

However, section 172 applies only to contracts entered into on or after 1 July 2010. For contracts entered into before 1 July 2010, section 150 of the Uniform Credit Code (‘Old Code’) applies (item 3(3) sch 1 National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth)).

A consumer lease must be in writing and disclose, at a minimum, the following:

• a description of the goods (s 174(1)(a) NCC);
• the amount the lessee must pay before the goods are delivered (s 174(1)(b) NCC);
• the amount of stamp duty and other government charges the lessee must pay (s 174(1)(c) NCC);
• any charges additional to rental (s 174(1)(d) NCC);
• the amounts and timing of rental payments (s 174(1)(e) NCC);
• the number of rental payments and the total amount payable (s 174(1)(f) NCC);
• the conditions on which the lessee may terminate the lease (s 174(1)(g) NCC); and
• the liabilities of the lessee on termination of the lease (if any) (s 174(1)(h) NCC). The lessee must get a copy of the lease, and a statement (in the form prescribed by the NCCP Regulations) that explains the lessee’s rights and obligations under the lease (‘Form 17: Information statement’) within 14 days of entry into the lease (s 175 NCC). For leases entered into after 1 March 2013, lessors are required to provide periodic statements (s 175C NCC) and an ‘end of lease statement’ in the prescribed form at least 90 days prior to a lease term ending (s 175H NCC). Lessors are required to comply with provisions that are largely equivalent to the responsible lending provisions imposed on credit providers. These are set out in Part 3–4 of the NCCP Act. For leases entered into on or after 12 June 2023, the following further measures apply:
• Lessors must disclose additional matters to con- sumers prior to entering into consumer leases. A lessor must disclose the base price of the goods to the lessee – the base price is the lower of the agreed price and the independent market price or recommended retail price of the goods. The les- sor must also disclose the difference between the base price and the total amount payable under the lease, including add-on fees and taxes but exclud- ing default and enforcement charges (s 174(1A) NCC, reg 105AA NCCP Regulations).
• As part of its responsible lending obligations, the lessor must consider transactions and balances of the consumer’s account for the previous 90 days (ss 140(1A), 153(1A) NCCP Act). If the application is not considered unsuitable, the lessor must document the assessment and relevant enquiries and verifications (s 156C NCCP Act).
• A lessor must not enter into a consumer lease where the repayment amount plus any other amount required to be paid by the consumer during the repayment period exceeds 10% of the consumer’s available income. The repayment amount includes repayments for any other leases the consumer is in at the time (s 156B NCCP Act, reg 28LCB NCCP Regulations).
• The total amount payable by the lessee in connection with a consumer lease must not exceed the permitted cap as defined in s 175AA of the NCC. Lessors are prohibited from engaging in unsolicited communications inducing consumers to apply for or obtain a consumer lease in the circumstances described in s 179VA of the NCC. There are also restrictions imposed in relation to canvassing for and entering into indefinite consumer leases as set out in sections 179VB and 179VC of the NCC.

Section 178 of the NCC requires that a lessor give a lessee 30 days written notice before repossessing leased goods. However, this rule does not apply:

• at the end of the term of the lease (s 178(2)(a) NCC);
• if the lessor believes on reasonable grounds that the lessee has or will dispose of the goods in breach of the lease (s 178(2)(b) NCC);
• where the lessor cannot find the lessee after making reasonable efforts (s 178(2)(c) NCC);
• if the lessee is insolvent (s 178(2)(d) NCC); or
• if the court allows the lessor to do otherwise (s 178(2)(e) NCC).

Section 178A of the NCC allows the lessee to terminate a consumer lease, by written notice, prior to the leased goods being provided.

There are provisions in the NCC that cover:

• lease variations by agreement (s 177A NCC);
• hardship variations (s 177B NCC);
• reopening unjust contracts (s 177F NCC); and
• enforcement (s 179D NCC), in relation to consumer leases entered into after 1 March 2013. These provisions largely mirror those that apply to credit contracts and consumer leases entered into before 1 March 2013 to which the NCCP Act applies.

WARNING

Some traders, car dealers, finance brokers and lenders sign consumers up for consumer lease when in fact the consumers intend to enter into a ‘rent to buy’ (sale by instalments) agreement or loan contract. A consumer who enters into a lease in such circumstances should obtain advice about whether they can seek to have the transaction reopened as unjust (see ‘Unjust contracts’, above), or whether the consumer lease provider has engaged in misleading or deceptive conduct under section 12DA of the ASIC Act.