Daily Development for Thursday, December 2, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu

EQUAL CREDIT OPPORTUNITY ACT; COMMERCIAL LEASES: A commercial sublease for a restaurant is not a “credit transaction” so as to invoke the provisions of the Equal Credit Opportunity Act prohibiting a creditor from requiring a spouse to guarantee the obligations of the other spouse. Thus, sublandlord can require spouse of restaurant business owner to guarantee sublease.

Mick's at Pa. Ave. v. Bod, Inc., 2004 U.S. App. LEXIS 24652 (D.C. Cir. 11/30/04)

The plaintiffs invoked Brothers v. First Leasing, 724 F.2d 789 (9th Cir. 1984), which had found a consumer auto lease to be a credit transaction. But the court summarily distinguished the Brothers case. The court said that Brothers “involved a consumer automobile lease which the Ninth Circuit concluded fit within the Act's definition of "credit transaction" because it required the consumer lessee to pay a fixed sum in equal installment payments at fixed intervals. . . .The court there based its holding on the premise that the anti-discrimination provisions of the Act apply to all transactions covered by the Consumer Leasing Act, 15 U.S.C. Sec. 1667-1667e. . . . The reasoning in Brothers, therefore, has no application to a commercial real estate lease.”

Further, the court noted that the sublandlord was not regularly engaged in the extension of credit - a requirement for the Act to apply.

Comment: As to the “regular extension of credit,” this would not be a satisfactory solution to many landlords. The case law under the Act frequently has found parties who engage in the alleged financing transactions only three or four times a year are engaged “regularly” in such transactions. Many traditional landlords have that many deals a year. And, let’s face it, in one sense all leases are forms of financing. The fewer the services provided by the landlord, the more likely a court will find a financing.

It would be much better if we could be given clearer guidelines as to when a real estate lease is not a “financing transaction” with the Act. But we’re not going to get that - and for now will have to be satisfied that most “vanilla” leases present little risk.

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