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Truck Renting and Leasing Association

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New Mexico Governor Signs TRALA-Requested TRAC Legislation into Law

New Mexico Governor Susana Martinez (R) last night signed into law TRALA-requested legislation clearing the way for lessors to fully appreciate the benefits of TRAC leasing in New Mexico.  


New Mexico House Bill 72 addresses concerns of TRALA members about maintaining the correct and accepted definitions of what a TRAC lease is and how it should operate.  The bill passed the House unanimously by a vote of 62-0 on February 18, 2013 and then passed in a similar fashion in the Senate by a vote of 35-0 on March 15, 2013.  The governor then had 20 days in which to sign the bill into law.

 

Terminal Rental Adjustment Clauses (TRACs) permit or require an up or down adjustment of rent to make up for any difference between the projected value of a vehicle and its actual value upon lease termination.  The objective of these leases is to provide a financial incentive for the lessee to control the maintenance of the vehicle and keep the vehicle in good repair.  TRAC vehicle leasing is limited by federal tax law (26 U.S.C. 7701(h)) to commercial leases only.  

 

After TRALA's successful lobbying efforts in both North Carolina and Kentucky over the past two years, TRAC statutes had been passed in 49 States and the District of Columbia - leaving only New Mexico yet to enact clarification legislation.  These statutes have made it clear that TRAC vehicle leases are true leases and not sales or security interests for state law.   With New Mexico now adopting TRAC legislation, all 50 states will operate under the same tenets of law.

 

The impact of TRAC statutes is particularly helpful to TRALA members in bankruptcy cases, by supporting the "true lease" status of TRAC leases when the lessee is in Chapter 11-bankruptcy reorganization.  True lease status gives the lessor a greater right to recover full current rental payments from a bankrupt lessee, and it may entitle the lessor (unlike a secured creditor) to have the vehicle returned so that it can be re-leased to another lessee. 

 

TRALA would like to thank all of its members that helped in this endeavor, particularly Enterprise Commercial Trucks as well as the American Automotive Leasing Association that worked so closely in conjunction with TRALA on this legislative effort.

 

If you have any questions about this legislation, please contact Jake Jacoby at jjacoby@trala.org or at 703-299-9120.