The National Credit Code recognises two types of hire agreements:

• One is a consumer lease by a natural person or strata corporation under which the renter pays rent to the lessor and at the conclusion of the hire period, the renter must return the goods to the lessor. There is no ownership right given to the renter during the lease agreement or at the conclusion of the agreement. A variation of this confers on the renter a right to make an offer to buy, which the lessor in its discretion can accept or reject.
• The second type of hire agreement the National Credit Code recognises is the hire purchase type agreement (or sale by instalments) pursuant to which the hirer does have a right, at the conclusion of the term to either acquire the goods by the payment of a balloon payment, payment of an agreed sum such as $1 or to receive the goods for no consideration.

The parties have different rights and obligations under the National Credit Act depending on the type of agreement.

ASIC recently announced that Dale Cleves Music Pty Ltd, trading as Winston Music, has stopped advertising its musical instrument rental agreements as ‘rent to buy’ and ‘choose to purchase’ following ASIC concerns it was misleading.

ASIC was concerned that:

• the terms of the rental contract did not give consumers the right or obligation to purchase the instrument. Instead they provided that the consumer may make an offer to purchase the instrument which Winston Music may or may not accept, and
• they incorrectly advertised these arrangements as ‘rent to buy’. Unless a consumer has a right or obligation to purchase the goods under a goods rental contract, it is misleading to advertise the arrangement as being ‘rent to buy’.

Winston Music has stopped using the phrases ‘rent to buy’ and ‘choose to purchase’ in its advertising, including in signage on its delivery truck, website, and its telephone on-hold system.

Winston Music has published a corrective notice regarding the advertising on their website, and has also sent a copy of the corrective notice to current customers.

The Code does not apply to a consumer lease for a fixed period of 4 months or less or for an indefinite period or to a consumer lease under which goods are hired by an employee in connection with the employee’s remuneration or other employment benefits.