Quebec Reduces the Priority Window for the Registration of Ownership Rights of Lessors and Sellers at the RPMRR

On October 25, 2023, the National Assembly of Quebec passed Bill 17, An Act to amend various provisions for the main purpose of reducing regulatory and administrative burden (Act). The Act amends several Quebec laws, including various provisions of the Civil Code of Québec (CCQ) impacting the registration of rights at the Register of Personal and Movable Real Rights (RPMRR), the Quebec personal property security register. Notably, the amendments reduce the registration period for making certain rights under leasing contracts, sales and certain leases opposable (perfected) against third parties retroactive to the date of such leasing contracts, sales and leases from 15 days to seven days. These amendments will come into force on November 27, 2023, and will be particularly important to those creditors operating in the lease, lease finance and instalment (conditional) sale space. 

In Quebec, lessors or sellers of certain categories of movable (personal) property protect their title and ownership rights or the right of redemption in property leased or sold pursuant to leasing contracts, leases, instalment (conditional) sales or sales with the right of redemption by registering such rights at the RPMRR to make these rights opposable to (perfected against) third parties. Currently, the CCQ provides that if registration is made within 15 days, the protection of the lessor’s or seller’s rights will be retroactive to the date of the leasing contract, lease or sale, as applicable. If registration is made after the 15-day window, the protection is opposable against third parties (perfected) only from the date of registration, meaning that the rights of the lessor or seller will rank after any liens against the property registered prior to such date. The Act reduces the publication period from 15 days to seven days from the date of the leasing contract, lease or sale, as applicable. The lessors or sellers may also protect their rights by way of global registrations pursuant to article 2961.1 of the CCQ, which have not been amended by the Act and are not discussed in this bulletin. 
 
The reservation of rights of ownership or rights of redemption under sale or leasing agreements, as applicable, and rights under a lease through registration at the RPMRR allows the seller or lessor to retain ownership rights in the property until the buyer or lessee fulfills its obligations. Registration of these rights also informs third parties that, despite possession, the buyer or lessee of the property is not the title holder. Failure to register in time or at all may cause the seller or lessor to lose their ownership rights in the property vis-à-vis third parties. In such cases, the law allows third parties to treat the buyer or the lessee as the owner. Discussions during the study of Bill 17 indicate that the reduction of the registration window from 15 days to seven days is intended to reduce the period of uncertainty for third-party creditors by reducing the time during which any security they take in financed property may become second rank to that of an owner or lessor who registers its rights with retroactive effect.
 
The Act also amends article 3015 of the CCQ that sets out requirements for filing a change of name in the RPMRR. Previously, a certified copy of the document evidencing the change of name of the holder or grantor of a registered right in movable (personal) property was required. As of October 27, 2023, pursuant to the Act, such document no longer needs to be certified. It is important to note, however, that while certification of the change of name documentation is no longer required, certification of French translations of documents filed at the RPMRR, where such documents are only in a language other than French, is still required. 

The government’s initiative to reduce uncertainty and foster faster execution of financing transactions is laudable. However, the reduction of the priority registration period to seven days may prove challenging for certain sellers and lessors in the short term. In addition to a shorter delay, they need to take into account the RPMRR’s requirement that a registration application must be submitted before 3:00 p.m. ET on a business day for that registration to bear the date of that business day, otherwise it will bear the date of the next business day, and the recent changes in law requiring registrations to be made in the French language only.

In our view, lessors and sellers may have benefitted from the Act providing for a slightly longer transition period before such changes became law. Ahead of the changes coming into effect, lessors and sellers should urgently review and update their registration processes to ensure that, starting November 27, 2023, their registrations are routinely made within a maximum of seven days to ensure their rights are protected from the date of the leasing, the sale or the lease, as applicable. However, a safer practice would be to register within a shorter period of time.

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