The Federal Government has introduced changes to the Personal Property Securities Act (PPSA) with the enactment of the Personal Property Securities Amendment (PPS Leases) Act 2017. The amendments came into effect on 20 May 2017, and extend the minimum duration of the term of a lease or bailment before the interest meets the definition of a PPS Lease under the PPSA.
Meaning of ‘PPS Lease’
A PPS Lease is a type of security interest that is created by leasing or bailing goods, and requires registration on the Personal Property Securities Register (PPSR) in order for the goods to obtain protection from creditors of the person in receipt of the goods. The technical meaning of bailment is wider than that of a lease but also involves a person possessing property which is owned by another.
Title to property that is subject to an unregistered PPS Lease is at risk of being lost if a bailee becomes bankrupt or insolvent. In such a case, it is often immaterial what the agreement states (whether, for instance, there is a retention of title clause), as the liquidator will give priority to creditors who have registered their interests, and will be entitled to sell the property despite title being under the lessor’s/bailor’s name.
The changes
Under the new changes, the minimum duration of a PPS Lease has been increased from more than one year to more than two years, and includes any option period. Note that even if the agreed term of a lease is not more than two years, the lease will become a PPS Lease if it does end up extending beyond the two year period.
Leases and bailments that are of an indefinite term will not be deemed to be PPS leases unless and until they run for a period of more than two years. This is a departure from the previous position under the law, which required registration of all leases or bailments that were of an indefinite period.
It is important to note that even where a lease does not constitute a PPS Lease, it might still meet the general definition of a security interest under section 12 of the PPSA.
What does this mean for you?
If you enter into a lease or bailment for two years or less, you do not need to register the interest on the PPSR as it is no longer considered a PPS Lease and will automatically be protected.
If you enter a lease or bailment of an indefinite term, you should register it when you have reasonable grounds to believe that the lease will exceed a two year period. This can be before the entry into the lease or as the lease approaches the end of the two year period.
The changes afford welcome relief to short term hire and rental businesses by reducing the administrative burden with respect to leases of shorter duration than two years.
For businesses that lease property for more than two years, it remains paramount that you register on the PPSR to ensure your property is protected. If you have goods that are held by another party for extended periods and the arrangements were entered into after 20 May 2017, you should contact us regarding preparing or modifying any relevant agreements or attending to PPSR registration for you.
