Leasing Law: Bundle Up!
In recent years, lessees have been pressing for equipment leases to include both software used, and services to be provided, in connection with the equipment. The 2001 amendments to Article 9 of the Uniform Commercial Code (the “UCC”) expanded the definition of “chattel paper” to include not only leases and security interests in specific goods, but also security interests, leases and licenses of “software used in the goods.” Consideration is now underway whether to define chattel paper to include transactions involving both software and services, as well as equipment.
Who Cares?
Equipment lessors, and third parties that either purchase or finance equipment leases, care about whether the contract constitutes chattel paper, because sales of and security interests in chattel paper can be perfected by possession of the chattel paper instead of (or in addition to) filing a financing statement. A purchaser or financier who relies on a filed financing statement to perfect its interest and wants to verify that its interest is first in line, also must search the recording office for all other statements filed against that lessor to determine whether any conflicting interests might have priority.
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“Leasing Law: Bundle Up!” by Stephen T. Whelan was published in the March/April 2021 edition of Equipment Leasing & Finance Magazine. Reprinted with permission.