Financial Leasing and its Unification by UNIDROIT :

the Role of the Organization of American States

John M. Wilson *

I. – BACKGROUND

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The International Academy of Comparative Law held its 18th International
Congress of Comparative Law in Washington, D.C., from 25 to 31 July 2010.
Among other topics, the Congress included “Financial Leasing and its
Unification by UNIDROIT.” To prepare the panel, Professor Herbert Kronke,
General Reporter of the topic and immediate past Secretary-General of
UNIDROIT, prepared a questionnaire used as a template for the national reports
prepared for the present volume of this Review. In particular, the national
reports examine the current legal framework in the States, gauge the
implementation status of UNIDROIT instruments on leasing and secured
transactions, identify opportunities for implementation of these instruments
and provide general recommendations for States to move toward unification
in this field of law.
As a result of the Organization of American States (OAS) having adopted a
Model Inter-American Law on Secured Transactions at CIDIP-VI 1 in February
2002 2 and accompanying Model Registry Regulations in October 2009, 3 the

* Senior Legal Officer, Department of International Law, Organization of American

States (OAS).
The text of the UNIDROIT Model Law on Leasing, adopted on 13 November 2008, in the
official language versions – English and French –, is available at <http://www.unidroit.org>.
1 The Organization of American States promotes harmonization and codification of
Private International Law via the Inter-American Specialized Conferences on Private International
Law (known as “CIDIP” for its Spanish acronym), in which all OAS member States may participate.
The CIDIP conferences are the principal component for the development, harmonization and
codification of private international law within the Inter-American system.
2 Model Inter-American Law on Secured Transactions (hereinafter: “Model Law”),
approved by resolution CIDIP-VI/RES.3 (02), International Loan Contracts of a Private Nature, in
Particular the Uniformity and Harmonization of Secured Transactions Law, Sixth Inter-American
Specialized Conference on Private International Law, 4-8 Feb. 2002.
3 Model Registry Regulations under the Model Inter-American Law on Secured
Transactions (hereinafter: “Model Registry Regulations” or “Regulations”), approved by resolution

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 John M. Wilson

OAS was invited to reply to the original questionnaire and present this note on
the manner in which these instruments intersect with those adopted by
UNIDROIT on leasing and the role the OAS can play in the implementation
process. 4

II. – INTRODUCTION

All economic actors (whether small, medium or large enterprises) require

property (both movable and immovable) to operate. Real property (e.g.,
offices, plant, warehouse, and retail facilities), at which an enterprise provides

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services, manufactures goods, and/or holds goods for sale, is normally
acquired by purchase, lease or secured loan. Movable property (e.g., raw
materials, equipment and inventory) required to manufacture and/or sell
finished products is also acquired by either purchase, lease or secured loan.
While most OAS member States count with the legal infrastructure
necessary to accomplish most of these transactions, an important exception is
the acquisition of movable property by secured loan – an area in which most
States require changes to their existing legislation. Additionally, most States
require two types of changes to their local systems with regard to leasing of
movable property: first, to create a modern leasing figure, and second, to
regulate the potentially overlapping structures of leasing, on the one hand,
and secured lending, on the other hand.
The purpose of the questionnaire and national reports in this volume of
the Uniform Law Review is to examine the current legal frameworks regarding
leases and the intersection between leasing and other relevant areas of
national and international law. The results of this analysis will paint the path
forward for implementation of the instruments needed to provide access to the
real and movable property necessary to local business actors.
The following sections summarize the most salient portions of the
questionnaire as it applies to the OAS, provide an overview of the relationship

CIDIP-VII/RES.1/09 rev. 2 (09), Adoption of the Model Registry Regulations under the Model Inter-
American Law on Secured Transactions, Seventh Inter-American Specialized Conference on
Private International Law, 7-9 Nov. 2009.
4 The OAS is a regional organization formally established in 1948 to achieve among its
member States “an order of peace and justice, to promote their solidarity, to strengthen their
collaboration, and to defend their sovereignty, their territorial integrity and their independence”
and comprises 35 member States. The Organization’s main areas of work are democracy, human
rights, security, economic development, and development of international law (Charter of the
Organization of American States).

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 Financial Leasing: the Role of the Organization of American States

between the OAS and UNIDROIT, 5 the need to coordinate between

organizations in the drafting and implementation of instruments on leases and
secured transactions, summarize the OAS Model Law and Model Registry
Regulations in general, and as they relate to UNIDROIT instruments on
leasing, 6 in particular, and recommendations for the joint implementation of
these instruments. 7

III. – COORDINATION IN DRAFTING STAGES

An initial issue raised by the questionnaire concerns the general participation

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of the respondents in the preparation of UNIDROIT legal instruments. Although
the OAS did not participate directly in the negotiation and drafting of the
UNIDROIT instruments on leasing and secured transactions, it followed the
process closely and provided comments where appropriate.
As regards to the 2001 Cape Town Convention on International Interests
in Mobile Equipment and its Protocol on Matters Specific to Aircraft
Equipment, the OAS followed the preparation and negotiation of the
Convention and participated in a UNIDROIT regional seminar for
implementation of the Convention in the Americas. 8 The OAS also prepared a

5 INTERNATIONAL ACADEMY OF COMPARATIVE LAW, Questionnaire regarding the topic

“Financial Leasing and its Unification by UNIDROIT”, Section Commercial Law of the 18th
International Congress of Comparative Law, Washington, D.C., 25-31 July 2010, submitted to
National Reporters and International Organizations by Herbert Kronke, General Reporter.
6 The creation, perfection, registration and enforcement in those OAS member States that
may consider adopting the Model Law and Registry Regulations together with the UNIDROIT
instruments.
7 It is important to note that the OAS has adopted no documents on leasing itself and to
keep in mind that, although this note attempts to follow the format and content of the
questionnaire, the questionnaire necessarily focuses on the status of national law of States
members of UNIDROIT. Consequently, the intent of this note is simply to provide basic information
on the content and operation of the OAS Model Law and Registry Regulations and how these
approach the intersection of leasing and secured transactions. The present summary does not
intend to provide specific answers to the issues discussed in the national reports, many of which
do not apply to inter-governmental organizations.
8 La Implementación Conjunta de los Instrumentos de la OEA y UNIDROIT relativos a las
Garantías Internacionales sobre Bienes Muebles, Coloquio Internacional sobre el Régimen
Internacional de la Garantías Mobiliarias de Alto Valor, Posibilidades y Retos, Ex-Colegio de Santa
Cruz, Tlatelolco – México, D.F., Octubre 11-12, 2004 [The Joint Implementation of OAS and
UNIDROIT International Instruments on Secured Transactions, International Colloquium regarding
the International System for Movable Security Interests in High-Value Collateral, Opportunities
and Challenges, Ex-College of Tlatelolco, Mexico City, Mexico, October 11-12, 2004.]

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 John M. Wilson

study for the implementation of the 2007 Luxembourg Protocol to the

Convention on International Interests in Mobile Equipment on Matters
specific to Railway Rolling Stock in the Americas.9
The purpose of this coordination is to ensure that OAS instruments on
secured transactions are entirely compatible with those of UNIDROIT, and vice
versa, and to ensure they can be implemented jointly. As a result of this
coordination, the scope provisions of the OAS Model Law and Registry
Regulations exclude high-value equipment, including aircraft, railroad rolling
stock, and space assets, which should be regulated exclusively by the Cape

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Town Convention and its Protocols. 10 Moreover, the OAS Model Law
excludes true leases from its application, but allows registration of true leases
subject to the local legal framework. 11
As regards the instruments prepared by other international organizations,
the OAS followed and participated in meetings of UNCITRAL in the
preparation of its Legislative Guide on Secured Transactions. 12 The OAS also
prepared a proposal for UNCITRAL to undertake work in preparing a possible
Registry Regulation. 13 At its forty-third session, the UNCITRAL Commission
decided to undertake the drafting of such an instrument, 14 and the OAS has
participated in that process. 15

9 John M. WILSON, “Movable Equipment Financing in Latin America: Application of the

OAS Model Law and the Cape Town Convention and Rail Protocol”, Unif.L.Rev. / Rev. dr. unif.
(2007), 473 et seq.
10 The Model Law establishes that where another law or applicable international
convention requires that security interests be registered in a special registry, and contains
provisions relating to security interests created over such property, such provisions shall have
precedence over the Model Law (Model Law, Art. 37).
11 A State adopting this Law is required to create a unitary and uniform registration
system applicable to all existing movable property security devices in the local legal framework,
regardless of the form of the transaction and regardless of whether ownership of the property is
held by the secured creditor or the secured debtor (Model Law, Arts. 1 and 2).
12 UNCITRAL Legislative Guide on Secured Transactions, available at
<www.unictral.org>.
13 John M. WILSON, Model Registry Regulations under the Model Inter-American Law on
Secured Transactions, Organization of American States, presented at UNCITRAL’s International
Colloquium on Secured Transaction, Vienna, 1-3 March 2010 (cf. Unif. L. Rev. / Rev. dr. unif.
(2010). The Colloquium papers can be found at the following webpage of UNCITRAL:
<www.uncitral.org/uncitral/commision/colloquia/3rdint.html>.
14 Forty-third session (New York, 21 June – 9 July 2010), A/CN.9/702 and Add. 1.
15 Including participation in the nineteenth session of UNCITRAL Working Group VI
(Secured Transactions), New York, 11-15 April 2011, A/CN.9/WG.VI/XIX/INF.1, 15 April 2011.

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 Financial Leasing: the Role of the Organization of American States

The OAS also encouraged the participation of other international

organizations in the drafting process for the Model Inter-American Law on
Secured Transactions and its Registry Regulation and taken the text of other
international instruments into consideration in that process. 16 As a result of
this coordination, there are options for the potential joint implementation of
relevant instruments in the region, as discussed below.

IV. – REFORM EFFORTS

The need to coordinate between leasing and secured transactions instruments

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stems from the fact that these types of transactions have important
characteristics in common -- namely, the fact that both the lessee (in a lease
transaction) and the debtor (in a secured transaction) have possession of the
leased or financed property but do not own it outright. The problem thus is
one of ostensible ownership; where a third party may believe that the person
in possession of the property is the true owner. As a result, the local legal
system must make available a framework for providing legal (constructive)
notice to third parties that any interest acquired in leased property or property
used as collateral for a secured loan, is acquired subject to such
encumbrances.
Mindful that Latin American and Caribbean systems do not currently
provide modern rules for financial leases, secured transactions, the
intersection between the two, or the constructive notice that must be provided
to third parties, the OAS and UNIDROIT efforts have been geared to assist States
in reforming their current legal frameworks. 17
The OAS Model Law and Registry Regulations provide a framework for
States to create a properly functioning secured transactions system. However,

16 The European Bank for Reconstruction and Development Model Law on Secured
Transactions was also taken into account in the drafting of the OAS Model Law. Similarly, the
International Finance Corporation’s work on leasing and secured transactions as well as the
International Finance Corporation’s Toolkit on secured transactions were taken into consideration
in OAS work.
17 In the field of leasing of movable property, UNIDROIT adopted the Ottawa Convention
on International Financial Leasing in 1988 and a Model Law on Leasing in 2008. In the field of
secured financing of movable property, UNIDROIT adopted the Cape Town Convention and its
Aircraft Protocol in 2001 and the Luxemburg Rail Protocol in 2007. As mentioned previously, the
OAS adopted the Model Law on Secured Transactions in 2002 and its Model Registry Regulations
in 2009. UNCITRAL, which has also drafted a note for this issue of the Uniform Law Review, has
also adopted a Legislative Guide on Secured Transactions in 2008 and is currently undertaking
work on registry regulations.

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 John M. Wilson

only Mexico and Honduras to date have generally complied with the
requirement to fully and properly adopt these instruments. 18 As a result,
business actors in the region have little (or no) access to the secured credit
needed to finance their operations. To fill the gap, they frequently resort to a
mix of legal devices that include consignment agreements, conditional sales,
guarantee trusts and others to finance the acquisition of materials and
equipment. Leases also play a prominent role to fill the gap. Whether the
commercial intent of such transactions is a true lease, consignment, or
conditional sale, or the intent is to provide security for a loan, is of little

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practical importance in most Latin American and Caribbean systems.
The Model Law seeks to replace the multiplicity of devices (non-
possessory pledges, chattel mortgages, title retention devices, agricultural
credits, trusts, banking mechanisms, production guarantees and security
leases), with a unitary security interest, so long as these are used as security for
a loan. True leases are excluded from the scope of the Model Law. However,
the Model Law and the Registry Regulation do not prohibit their
registration. 19
In order to ensure proper operation, then, the Model Law requires a
unitary approach, with one regimen governing all interest of a secured

18 Mexico has struggled to create an effective secured financing system, attempting

several piece-meal reforms for the past ten years (2000, 2003 and 2009). The primary problem has
been that Mexico did not create a uniform/unitary security system from the outset. Instead, it
simply added two additional security devices – a non-possessory pledge and a guarantee trust – to
an already confusing mix of numerous pledges, trusts, chattel mortgages, conditional sales, etc.
The fact that these new devices generally followed the principles and rules contained in the Model
Law was of little consequence; lenders were reluctant to lend in a system that cannot guarantee
priority over interests created under previously existing legal figures. As a solution, the most recent
reforms preserved these competing mechanisms, but required a uniform (central) registration for
each, as the applicable step for perfection and priority. This dual approach – preserving the
existing figures but centralizing them via a registry – is provided for in the Model Law and could
solve the problem. After many early efforts failed, Mexico adopted a centralized registry in
October 2010, the first few months of operation of which give grounds for great optimism. See the
registry at <www.rug.gob.mx>.
19 The questionnaire inquired as to whether the Model Law makes specific reference to a
financial lease (e.g., by excluding a financial lease from its scope of application, by including it
under certain circumstances, etc.) and whether secured creditors’ interests (of any kind) must be
registered to become effective vis-à-vis third parties. Under the Model Law and Registry
Regulation, registration is required for third party effectiveness, but not required for creation of the
security interest and not required for leases.

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 Financial Leasing: the Role of the Organization of American States

creditor and the rights and duties of a secured debtor. 20 To this effect, the
Model Law and Model Regulations attempt to create a uniform system for all
non-possessory interests in movable property, by way of a single registry and
priority system. States adopting the Model Law, then, must create a single,
uniform registration system for all security devices, which must be recorded in
the same manner, in the same place, and subject to the principle of “first in
time, first in right.” This rule applies regardless of the mechanisms used to
create a right in property, ensuring that priority will be tied to the date of such
recording in the great majority of cases (the law does exclude the application

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of this rule in limited circumstances). 21
Although Latin American jurisdictions do not go into detail on the
registration of financial leases, few require their registration. Mexico, which
recently enacted a new secured transactions registry that largely follows the
recommendations of the OAS Model Regulation, requires the registration of
leases.22 Other jurisdictions do not prohibit registration. Mexico’s lead should
help facilitate incorporating this requirement into new registry systems in the
region. A new secured transactions framework may establish that leases (true
leases or security leases) be registered at the new secured transactions registry
pursuant to the registration regulations, instead of registering in the currently
required location or not registering at all. 23
Under the Registry Regulations, a filing is completed via a registration
form, which includes only the basic factual particulars needed to alert third

20 The questionnaire also contained specific references to the approach for distinguishing
between traditional legal concepts, such as: the interest of the seller under a retention-of-title
agreement; the interest of a financier extending credit in exchange for being granted an interest
under a security agreement; and other agreements supported by any conceptual analysis. The goal
of the Model Law is to incorporate all types of secured transactions into a single security
mechanism and to eliminate current mechanisms that create secret liens. This principle applies in
all cases where possession and ownership of property are separated, including consignment
agreements, conditional sales contracts, pledges, chattel mortgages, title retention devices,
agricultural credits, leases, trusts, banking mechanisms, production guarantees, etc.
21 Model Law, Arts. 1 and 2, and Title V on priorities.
22 See registration under Mexico’s Federal Single/Unitary Registry for Security Interests on
Movable Property [Registro Unico de Garantias Mobiliarias], <www.rug.gob.mx>.
23 The registration system under the Model Law and Model Regulations is a true notice
filing system, with a debtor-based registration criterion. However, the registry does provide for
asset-based registration for certain types of collateral in certain circumstances. The Model
Regulations also provide that no jurisdiction should require that transaction documents be filed
with the Registry. Registration should be based on notice, not transactions. Secured creditors
should submit registration information in a standard, uniform format, whether digital or hardcopy.

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 John M. Wilson

parties to the potential existence of a security interest in the identified items or

kinds of movable property of the named debtor, including the name and
address of the secured debtor, the name and address of the secured creditor,
the maximum amount secured by the security interest, and the description of
collateral, which can be specific or generic. In case of a lease, a notation that
the registration is of a true lease is sufficient to preserve the lease. 24

V. – INTERSECTION BETWEEN LEASES AND SECURED TRANSACTIONS

From a commercial standpoint, what matters most to a business enterprise is

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to obtain the goods it needs to operate its business: the business wishes simply
to acquire, use and eventually dispose of the property; the financier wishes
simply to provide possessory interests and use of the property to the debtor,
and to receive payment (principal and interest) in return, while preserving an
ownership interest in the goods to protect against a potential default on the
obligation. The instrument or figure the parties employ, and the additional
legal implications of such selection, are lesser considerations by comparison.
This is especially true since, even though the legal mechanisms resorted to in
these cases create binding and enforceable obligations between the financier
and the business (lessor/lessee, consignor/consignee, conditional seller/
conditional buyer), it is third parties that are most frequently adversely
affected. These mechanisms frequently create secret liens that continue to
encumber property in which a third party may acquire an interest unaware of
the hidden encumbrance.
With all these transactions, lawmakers must thus be mindful that the law
applicable to the relationship between the parties (lender/debtor, lessor/lessee,
etc., regardless of the legal term used to describe them), also affect third
parties not privy to the fact that the party in possession is not the true owner.
The fact that a transaction may be called a lease should be of little
consequence if the economic reality of the transaction is that of a loan. If the
transaction is a true lease, the relationship between the parties should be that

24 See Model Law, Arts. 35-46, and Model Registry Regulations, Art. 21. Comments to
Art. 21 state that the forms to be used in accessing the various functions of the Registry will be
determined once the detailed structure of the Registry is established and operating. Pursuant to
Art. 38 of the Model Law, the registration form must contain the following information: (a) the
name and address of the secured debtor; (b) the name and address of the secured creditor; (c) the
maximum amount secured by the security interest; and (d) the description of the collateral, which
can be specific or generic. Enacting jurisdictions are encouraged to develop their registration
forms by periodic regional meetings of the registrars as practice develops.

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 Financial Leasing: the Role of the Organization of American States

of lessor and lessee and be governed by the law of leases. If the transaction is
that of a loan, however, the relationship between the parties should be that of
creditor and debtor and be governed by the law of secured transactions.
The determining factor -- whether to apply the law of leases or the law of
secured loans -- should be based on substance, not on form. That is to say, it
should be based on the specific characteristics of the transactions, not on what
the parties choose to call the underlying contract or use as an underlying law.
Both OAS and UNIDROIT instruments favor a “substance test” to examine the
relationship between the parties to determine whether a particular transaction

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is a lease or a loan. 25
Although there is no definitive test for determining whether a transaction
is a true lease or a security lease (i.e., a secured transaction), the local system
should weigh all relevant factors, including whether the lessor: (1) has the
right to use the property for its full (or substantially all) of its useful life; (2) has
an obligation to purchase the property at the end of the lease term; (3) has the
right to purchase the property at less than its market value at the end of the
lease term; (4) has acquired an ownership interest in the property; (5) has
accepted a gain or loss in the value of the property during the lease term; (6)
has accepted any other obligations of ownership, etc. 26

25 The Model Law is intended to apply to commercial transactions. The determination of

whether a lease is a true lease or a financial lease should be based on the specific characteristics of
the transactions. Under the Model Law, the test should be to examine the relationship between
the parties to determine whether a particular transaction is a true lease or a loan. Although the
determination of whether a lease is a true lease or one intended as security is important with
regard to the relationship between the parties, to reduce the impact on third parties, those States
adopting the Model Law may need to provide for registration.
26 To illustrate the difficulties a court may encounter in determining whether a transaction
is a true lease or a security lease, consider the following example: a transaction where Rancho
Agricola S.A., a Guatemalan farming operation, needs to acquire combine tractors to plant and
harvest agricultural products for sale in local and cross-border markets. Combine tractors of the
type required by Rancho average $1,000,000 in price and have 6-8 years in good operational
condition.
Rancho Agricola and John Deere Acceptance Corporation enter an agreement
denominated “lease” for the acquisition of combine tractors.
Scenario 1: The agreement provides a fixed term of four years, with 48 monthly
payments of $12,500 ($600,000 total lease payments), at the end of which Rancho has the option
of delivering the combines to the lessor or purchasing them for an additional $600,000.
Scenario 2: The agreement provides for a fixed term of 8 years, with 96 monthly
payments of $12,500 ($1,200,000 total lease payments), at the end of which Rancho has the
option of purchasing the combines for $50,000.

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 John M. Wilson

If a transaction denominated a lease does not transfer to the lessee the

incidents of ownership, a court would determine that the transaction is in
substance a lease, the lessor is not subject to competing claims over the
property, and is not required under most legal systems to give publicity of the
existence of the lease. In short, the law applicable to lease should apply,
including the UNIDROIT instruments applicable to leases.
However, if the lease gives the lessee most of the incidents of ownership,
a court could determine that the transaction is in substance a security lease --
intended to finance the entire purchase price of the property plus interest. If

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the transaction is deemed a security lease, the interest of the lessor is subject
to publicity and priority under secured transactions law and to the competing
claims of buyers or other secured creditors. In short, the local versions of the
OAS Model Law or the UNCITRAL legislative guide, should apply.

VI. – COORDINATION IN IMPLEMENTATION STAGES

This closeness in application of one legal regime or another, however

dependent on the specific characteristics of a given transaction, requires that
both provide substantive solutions for loans and leases, and requires that they
work cohesively. As a result, UNIDROIT has been engaged in the work of the
OAS, and vice versa, particularly at the level where each organizes its agenda
and selects topics for development of treaties and other instruments. 27 This
cooperation also requires greater participation and substantive engagement in
the preparatory work which leads to a final text and requires further
cooperation at the level at which related instruments are held for adoption
and implemented in the legal frameworks of member States in common to
both organizations.
Close coordination at the implementation stage would help ensure
member States jointly to enact or to become party to relevant instruments on
leasing and secured transactions to produce a properly functioning legal
system and ensure the greatest impact possible on local economic
development. In this respect, the OAS Model Law recognizes the importance
and independence of leasing systems as a vital component of any States’

Both scenarios provide some indication that the agreement is in fact intended as a true
lease. However, the determination in scenario 2 is somewhat more difficult and a court could
determine that the intent of the parties was to finance the entire purchase price of the combines,
while the intent in scenario 1 was to lease their temporary use.
27 This coordination is described generally in Section III above.

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 Financial Leasing: the Role of the Organization of American States

commercial law. It also recognizes, however, that deficiencies in secured

transactions frequently force economic actors to use leases (among the
previously mentioned devices), simply because of deficiencies in the local
secured transactions system.
The Model Law recognizes that current local law on secured transactions
is inherently inefficient. 28 And although the Model Law and its registry
regulations do not specifically require the registration of leases, there is also a
recognition that both systems should work together. As discussed, current
systems produce uncertainty concerning what law applies, whether and how

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notice is provided to third parties, and the effect the notice (or lack thereof)
has on priority.
However, there is no incompatibility between leasing and secured
transaction laws. Both devices, regardless of their characteristics, have the
same objectives:
 to allow the lessee or debtor to obtain possession and use of the
property;
 to allow the lessor or secured creditor to obtain payment from the
lessee/debtor, while preserving the lessor/creditor interest in the
property in case of non-payment; and
 to put third parties on notice that possession by the debtor or lessee
is subject to the interest of the creditor or lessor.
To accomplish the third objective, the local legal system must simply
require registration of leases over movable property in the secured trans-
actions registry. Such registration would ensure that any transaction that
separates possession from ownership is publicized, regardless of what it is
called.
The legal and practical advantages of such precautionary registrations are
clear: to put the world on notice that goods in possession of a lessee/secured
debtor are subject to an encumbrance. The economic benefits are equally
tangible: to protect a lessor/secured creditor’s interest in goods, thereby
fostering greater certainty and willingness to lend/lease, on the one hand, and
to protect third parties from unknowingly acquiring an interest in encumbered
property, on the other hand, thereby fostering greater confidence in the
marketplace.

28 Model Law, Title III on Publicity, Title IV on Registry and Title V on Priority. See
generally, Model Registry Regulations as an alternative to current registry systems and practices.

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 John M. Wilson

Despite the clear advantages, unfortunately, neither the UNIDROIT

instruments on leasing, nor the OAS instruments on secured transactions
require the registration of leases in the secured transactions registry.
UNCITRAL instruments on secured transactions also do not require registration
of true leases.
The first drawback is the cost of registration. Most registry systems in Latin
America require that registration follow the real estate registry model for
determining registration fees. Such fees are largely based on a percentage of
the overall value of a transaction and can impose significant costs to a lease

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that otherwise would not require registration.29
The second disadvantage is the uncertainty in the effect of registration.
Even though there is progress in the region in the field of secured transactions
reform, especially with regard to the creation and perfection of security
interests, there is little to no experience with the enforcement of a security
interest (much less with regard to the operation of a registered lease).
Consequently, a secured party that undertakes the process of lending using a
new law in Latin America is taking a gamble of sorts that the court system will
provide for speedy and effective enforcement in case of default. When
combined with high registration fees, however, this gamble may be too costly
for potential lenders to undertake.

29 The Model Law does not address the issue of cost of registration, but the Model
Registry Regulations state that the cost of registration should be only for the services rendered.
Model Registry Regulations Art. 20. Comment to Art. 20 states that the Registry should not be used
as an additional source of income for the government. Registry fees should reflect the cost of the
services provided. Under this approach, the amount of the fee will not be calculated on the basis
of the amount of credit involved in the transaction to which the registration relates. In order to
promote electronic registrations and reduce the time and costs associated with the processing of
paper-based registrations, enacting jurisdictions may set the fees for paper-based registrations
higher than those specified for electronic registrations. By contrast, most Latin American registries
calculate cost as a percentage of the secured loan amount. These percentage-based charges do not
function as a fee, but rather as a tax on credit transactions. Considering the lucrative nature of
Latin American taxing practices, Latin American countries may be inclined to continue this
practice, as has been the case in Guatemala which recently enacted a secured transactions registry
in which the fee is based on a percentage of the overall loan amount. States adopting the Model
Law must, however, keep in mind that parties to a secured transaction attempt to avoid high costs
by not registering their transactions. This practice promotes hidden transactions and creates secret
liens. As a result, adopting States should encourage and not penalize those parties that choose to
publicize their security interests. Experience with modern registration systems has proven that
instead of taxing registration, low fees should be established to encourage registration and thus
promote transparency and certainty for credit transaction.

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 Financial Leasing: the Role of the Organization of American States

A third disadvantage is the possibility that a court may use the fact that a
true lease was registered as an indication that such transaction is in fact a
security interest. Such determination could change the rights and obligations
of the parties and subject the lessor to claims of competing buyers and
secured parties. As a result, the lessor may wish to avoid this potential
connotation by not registering at all.
In sum, the costs or registering a true lease can be high, the benefits can
be dubious or unknown, and the effect of registration may open the door to
alterations to the lease agreement. Moreover, the only beneficiaries are third

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persons not party to the original transaction. As a result, it is not difficult to see
why a lessor may be reluctant to register its lease, despite the advantages
mentioned above.
Further coordination at the implementation stage, however, could resolve
some of the uncertainties inherent in registration. The new registry system in
Mexico provides for registration of leases free of charge, and provides a best
practice that the OAS and UNIDROIT should jointly promote in the region to
ensure that true leases can be registered to provide universal notice without
affecting the commercial and legal characteristics of a lease.

VII. – CONCLUSION

As mentioned, both the OAS and UNIDROIT have undertaken efforts in recent
years to modernize the legal frameworks of their member States in the fields of
secured transactions and leases. As part of these efforts, the OAS approved the
Model Inter-American Law on Secured Transactions in 2002, and the Model
Registry Regulations in 2009. Meanwhile, UNIDROIT adopted the Cape Town
Convention on International Interests in Mobile Equipment in 2001, the
Protocol on Matters Specific to Aircraft Equipment in 2001, and the
Luxembourg Protocol on Matters specific to Railway Rolling Stock in 2007,
the Ottawa Convention on International Financial Leasing in 1988 and a
Model Law on Leasing in 2008.
The Model Law and Regulations expressly contemplate the existence of
the UNIDROIT instruments by allowing special regimens for certain types of
collateral, including high-value equipment such as aircraft and rail equipment
and by allowing the creation of a uniform and comprehensive registry system.
The Model Law also provides that security interests may be perfected by filing
in a specialized registry, such as the new international finance registry for rail
equipment.

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 John M. Wilson

As a first step in this reform process, States should consider using the OAS
Model Law and Registry Regulations, as well as the aforementioned
instruments from UNCITRAL and UNIDROIT to reform their local secured
transactions frameworks. Secondly, States should utilize UNIDROIT instruments
to reform their leasing framework and, particularly, States should pay close
attention to the areas in which secured transactions and leases intersect.
In addition, UNIDROIT and the OAS should continue to increase their
cooperation during the drafting and adoption of their respective instruments,
which, if implemented jointly, will have greater effect on the economic

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activity within each State and help to ensure that local businesses count with
the legal framework necessary to finance all aspects of their operations.

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

482 Unif. L. Rev. 2011