The passenger car hire and rental industry is becoming increasingly competitive. According to IBISWorld, as private and government sectors continue to outsource their fleet management, operators in the car rental and hiring industry should see favourable growth. There is also increasing demand from domestic businesses and tourists as vehicles become more accessible to borrow.
If you are opening up a business as a car hire provider, there are many legal considerations you should factor in before purchasing a fleet. You should understand how operating leases work, the importance of registration on the Personal Property Securities Register and the unfair contract term changes which came into effect in November. As the Australian Consumer Law (ACL) binds all car rental operators, it is also important you understand how your advertising and business management practices are affected.
1. Operating Leases
For corporations that employ staff who are required to travel frequently on the road, an operating lease is a leasing option that operates similarly to a long-term car rental. Often, the financing company owns the vehicle and provides the client with exclusive use for a specified period in return for lease rental payments. When the agreement ends, the client will return the car to the financier. While the rental agreement is often for a specified term, it can also be a specified kilometre limit.
Operating leases are a necessary expenditure for many businesses and are often more appealing than owning and operating a vehicle. Fully maintained operating leases offer corporate clients entire vehicle and fleet management services and can allow clients to adjust their demand for vehicles seasonally. Also, operating leases allow for the option for lessees to upgrade with substantially less cost than owning the vehicle.
2. Motor Vehicle Rental on the Personal Property Securities Register
As a result of reforms to the Personal Properties Securities Act 2009 (Cth) (PPS Act) in January 2012, car hire operators must consider whether they need to register their security interests on the Personal Property Securities Register (PPSR).
A security interest in these circumstances refers to any property used to secure payment, such as a vehicle. Under the PPS Act, when an arrangement is for more than one year, this will be considered a PPS lease. Where car hire operators register the motor vehicles, they should include the serial number in the registration to ensure it is not leased or sold free of the security interest.
Registering vehicles is not compulsory, but it’s advisable as it will make sure that the car hire operator maximises their priority over the security interest. Priority is the order in which the PPS Act will enforce interests in the property. If a lessor fails to register their security interest, they may lose the interest in the event of liquidation or bankruptcy of the lessee.
3. Australian Consumer Law for Car Hire Companies
If your car rental business uses standard form car hire contracts, you must comply with the Australian Consumer Law (ACL). Ensure that your car hire contracts do not contain any unfair terms, for example, the ability for car rental companies to:
- Increase fees without the right for the consumer to terminate;
- Charge consumers without giving them notice or an opportunity to dispute the charge;
- Make the consumer liable for matters outside their control;
- Cancel the contract without allowing the consumer to cancel;
- Prevent the consumer from relying on statements made by the car rental company; and
- Avoid liability for negligence.
If the court deems a contract term unfair, the court will treat the term as if it never existed. Car rental companies must also ensure that the contract is presented clearly, expressed in reasonably plain language and readily available to any party affected by the contract. The court will consider any hidden fine prints, technical language or complex schedules as a lack of transparency in the contract.
Under the Australian Consumer Law, car rental companies must also:
- Not make incorrect statements or create a false or misleading impression in light of representations about liability and insurance cover;
- Not deduct fees for damage without a reasonable opportunity for the consumer to dispute it;
- Provide an itemised bill when requested by the consumer within seven days of the request;
- Ensure motor vehicles are reasonably fit for any purpose under the consumer guarantees; and
- Not hold the consumer responsible for any pre-existing damage to a vehicle.
While many car rental operators are franchises (including Europcar, Budget, Fleetcar, Avis, and Hertz), store owners and small independent operators should still be aware of their obligations under the ACL.
Operating a car rental company requires a good understanding of a variety of legal obligations. While a franchise network can draft and issue you many legal contracts on your behalf (including operating leases), you must still be aware of your obligations under the Australian Consumer Law. In particular, representations about liability and cover, as well as charges for repairs and debits to credit cards, are common disputes that customers raise when they receive their bill. If you have any questions about consumer law or drafting an operating lease, get in touch with our business lawyers on 1300 544 755 or fill out the form on this page.