Reference no: EM133505989

Case Study: Dairy farms in the Waikato region are expected to be under financial pressure, with the significant fall in the forecast price for milk solids. Farmers are instead turning their attention to growing crops like corn, wheat barley and rye and other commercial crops. In, order to productively farm these crops, farmers will need to be able to obtain farm machinery particularly, tractors in order, to prepare the ground for planting as well as for the mechanised harvesting of these crops.

Waikato Tractors Limited('WTL') is an established business which both sells tractors as well as operates a business which involves the hiring of such tractors for periods of time, which range from 18 months to five years. Due to the financial pressures faced by farmers, WTL has not had a thriving tractor sales' business and in fact has experienced a steady downturn, in annual tractor sales. However, leasing activity by farmers wishing to lease WTL's tractors which are available for leasing, has shown promising signs of being a thriving business as farmers are much better positioned financially to enter into leasing agreements for such tractors as leasing is much more affordable than outright purchase of these items of machinery.

WTL's accountants have undertaken accurate costings of the tractor hire part of WTL's business and have made a compelling case to WTL, that the tractor hire business must be expanded, in order to cater for the increasing demand for tractors to be available for hire as well as tractors available for hire and purchase arrangements over the term of the hire. WTL accepts the advice and purchases the additional tractors, a sufficient number of which, are either leased to farmers under leasing agreements or alternatively WTL and its farmer clients have also entered lease to buy agreements in respect of the remaining tractors. These leasing agreements specify the monthly amount payable by the lessees, as well obligations for the repair and maintenance of the tractors during the terms of the leases.

The accountants for WTL are quite concerned about the risks that WTL will face, as a result, of parting with possession of the tractors under the various leasing arrangements. They come to you for advice on what steps should be taken and why, in respect of the leasing of these tractors, which they accept are items of personal property.

Question: Advise WTL's accountants as to whether the risks to WTL's interest as owners of the tractors, are real risks and if they are, how should WTL ensure that its interests in the tractors are given the best possible legal protection.