A non-profit housing society with eleven directors operates a portfolio of three apartment buildings in Lethbridge, Alberta, financed under a 2019 general security agreement with a regional credit union. The GSA secures a $14.2M operating line and is registered against all present and after-acquired personal property. Schedule B of the GSA lists specific HVAC equipment and major appliances as collateral.
In April 2025, the executive director signs a lease-to-own arrangement with an equipment vendor for $487,000 worth of new boilers and rooftop heat pumps across the three buildings. The lease term is six years with a $1 buyout. The executive director does not raise the arrangement at the next two board meetings. The board's standing finance committee approves the monthly lease payments as routine operating expenditure.
In September 2025, the credit union conducts its annual collateral review and discovers the new equipment. The credit union's counsel takes the position that the lease-to-own constitutes either replacement collateral subject to the GSA's after-acquired clause, or alternatively a competing security interest that required prior written consent under section 7.4 of the GSA. The credit union demands either subordination of the vendor's interest or repayment of the operating line drawdown that funded the lease deposits.
The board chair learns of the dispute through a copy of the credit union's demand letter, forwarded by the executive director three weeks after receipt. The board has no record of authorizing the lease, no record of reviewing the GSA's restrictive covenants since 2021, and no documented process for screening operational decisions against the security agreement. Two directors are lawyers. Three are accountants. The remaining six are community members appointed for housing-sector experience.
The credit union's letter requests a board-level response within thirty days. The vendor has registered a PPSA financing statement claiming a purchase-money security interest in the equipment. Counsel for the housing society advises that the PMSI claim is likely valid as to the equipment but that the operating line covenant breach is a separate matter the board must address directly.