Interpretation ID: SUBLEASE.ETL
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY 10112
Dear Ms. Baldwin:
This is in response to your letter of September 12, 1996, in which you request written confirmation from the National Highway Traffic Safety Administration ("NHTSA") that the transfer of a leasehold interest in a motor vehicle that you describe in your letter "would not require compliance with the odometer disclosure requirements set forth in . . . 49 CFR Part 580 at the inception of the leasehold transaction," in those states which have given you official written notice that the transaction that you describe is not a transfer of ownership which would require issuance of a new title.
As you describe the transaction that is the subject of your request, the leasing company that owns motor vehicles already under lease to end-users ('the lease company") is to lease the leases of those vehicles to a special-purpose trust ("the trust") (formed for the sole purpose of executing this financial transaction), which will simultaneously sublease the vehicle back to the lease company. Your letter further states that the leases and subleases executed between the lease company and the trust are "subject to" the end-user leases of the customers who lease the vehicles from the automobile lease company. In your letter, you also indicate your understanding that the interpretation you are requesting would apply only with respect to transactions of the nature described in your letter that take place in states that have formally (i.e., in writing, over the signature of an authorized individual) determined that such transactions do not require a transfer of title.
With the above limitation, I can confirm that your understanding is correct. The statute that sets forth Federal odometer disclosure requirements is the Truth-in-Mileage Act of 1986 ("TIMA"), now codified at 49 U.S.C. Chapter 327. Section 32705 of that statute requires a transferor of a motor vehicle to make a signed disclosure of the vehicle's odometer reading at the time that he or she is transferring ownership of a motor vehicle. Section 32705(b) also requires that this disclosure must be made on the vehicle's title. The Federal odometer disclosure regulations implementing this provision (49 CFR Part 580) likewise make it clear that the requirement to disclose the odometer reading arises when there is a transfer that requires the state to issue a new title in the name of a different owner. See 49 CFR 580.5.
NHTSA recognizes that the laws of the individual states differ as to the types of transactions that require the issuance of a title in the name of a different owner. TIMA relies on disclosure of odometer information on the vehicle's title document at the time of title transfer as its principal means of reducing odometer fraud. The integrity of the "paper trail" of written and signed odometer disclosure statements on the vehicle title must be maintained in order to accomplish this purpose.
Accordingly, the critical issue that must be addressed in deciding whether to require an odometer disclosure in a given transaction is whether that transaction requires a transfer of title under state law. The only way to ensure the integrity of the paper trail is to require that an odometer disclosure be made any time there is a transaction involving a motor vehicle otherwise covered by Part 580, that requires retitling of the vehicle in a new name under state law.
In your letter you have attached letters from officials of the states of New York, New Jersey and Florida in which they have stated their determinations that the transaction that you described to them, which is the same as the one that you describe in your letter to NHTSA, is not one which would require issuance of a new title under the laws of those states. We have independently reviewed the information you submitted describing the nature of the transaction, as well as the reasons given by the states for their conclusions that the transaction did not require the issuance of a new title under their laws. We conclude that the conclusions reached by the states regarding the legal status of your proposed transaction are reasonable and well-founded.
The lease company is leasing, rather than selling, the leases it owns in certain vehicles to the trust, which in turn is subleasing that interest back to the lease company. The lease company does not in these transactions relinquish ownership of the vehicle itself, nor does it relinquish ownership of the lease to the end-user. Therefore, there is a reasonable basis for these states to conclude that neither the lease of the
lease to the trust, nor its sublease thereof back to the lease company, are events that constitute a change in ownership interest which would require retitling under their laws.
Therefore, the agency concludes that in the states that have concluded that these events do not require the issuance of a new title, there is no requirement for an odometer disclosure statement either when the leasing company leases its lease to the trust, or when the trust subleases the lease back to the lease company. This opinion is not intended in any way to require, or even suggest, that other states reach the same conclusion as to whether the transaction you describe requires a new title. Whether a transaction involving a motor vehicle requires the issuance of a new title is a matter for each state to decide for itself based on its own laws and regulations governing motor vehicle titling. Accordingly, the conclusions stated herein do not apply to transactions of the type you describe that take place in states other than those that have officially concluded that the transaction does not require retitling.
Your letter is correct in its statement of what the Federal odometer law requires when the trust expires. At that time, the leasing company has the option of whether to buy out the trust's sublease. If it does so, it still retains ownership of the vehicle and the underlying lease to the end-user. Since exercising the option to buy out the lease does not involve a change of ownership, it does not require an odometer disclosure statement. However, if the leasing company does not exercise this option when the sublease expires, the special-purpose trust would take possession of the vehicles and their leases. As your letter correctly points out, this transaction is a change which requires the trust to apply for a new title, which in turn triggers the obligation to comply with all elements of Part 580 that are applicable. This includes both obtaining from the end-user/lessee a disclosure of the odometer mileage in compliance with 49 CFR 580.7, Disclosure of odometer information for leased motor vehicles, as well as the disclosure made by the lease company to the trust pursuant to 49 CFR 580.5.
I hope the information provided above is responsive to your request. If you have any further legal questions concerning the Federal odometer statute and regulations you may address them to this office at the above address, or telephone me at 202-366-9511 or Eileen Leahy, an attorney on my staff, at 202-366-5263.
Sincerely,
John Womack
Acting Chief Counsel
ref:580
d:10/25/96