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Client Update: Amendments to PPS lease law – what you need to know

22 May 2017

In brief: Legislation has come into force that will amend the Personal Property Securities regime. The amendments are designed to reduce the PPSA's impact on the equipment hiring industry. Previously hirers' equipment leases and bailment arrangements of an indefinite term, or short term leases of a year or more were deemed to be PPS leases, and security interests. If they were not perfected by registration, the owner of the equipment could lose priority, and could lose the equipment altogether if the lessee or bailee became insolvent. Many hirers were caught inadvertently. Now, those arrangements will only be caught if they are initially for two years or more, or the lessee or bailee ends up holding the equipment for two years or more. Partners Nicholas Creed (view CV) and Ben Farnsworth (view CV) explain.

Scope, the amendments only affect new operating leases not finance leases

The Personal Property Securities Amendment (PPS Lease) Act 2017 does not modify the PPSA's operation in relation to leases and bailments that, in substance, secure payment or performance of an obligation, that is finance leases and similar arrangements.

The Act only affects arrangements entered into on or after 20 May 2017.

PPS Register and lease arrangements

The PPSA deems certain arrangements, including PPS Leases, to be security interests even if the arrangement does not secure the payment of money or performance of an obligation.

To perfect the lessor or bailor's interest, PPS Leases must be registered on the PPS Register.

The Act aims to reduce the regulatory impact that the PPSA previously had on short term hire and rental businesses.1 Often these businesses use indefinite term leases that run for short periods of time, rarely exceeding two years.2 The amendments seek to confine the PPSA requirement to register to longer term hire and rental industry leases. The amendments were prompted by agitation from the leasing industry, and will primarily benefit businesses in that industry.

Comparing the old and new definition of PPS Lease

The Act amends the minimum time requirements needed for a lease or bailment to become a PPS Lease. A comparison between the old and new PPSA provisions (as amended by the Act) is provided in this table.

Old minimum time requirementsNew minimum time requirements
A lease or bailment for a set term of more than one year was a PPS Lease. A lease or bailment for a set term of more than two years is a PPS Lease.
A lease or bailment for up to one year that is renewable for one or more terms where the total of all terms might exceed one year was a PPS Lease. A lease or bailment for up to two years that is renewable for one or more terms where the total of all terms might exceed two years is a PPS Lease.
A lease or bailment for an indefinite term was a PPS Lease. A PPS Lease is a lease or bailment for up to two years or for an indefinite period, where the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted (or substantially uninterrupted) possession of the property for more than two years. The PPS Lease is only created once the lessee's or bailee's possession extends beyond two years.
A PPS Lease is a lease or bailment for up to one year, where the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted (or substantially uninterrupted) possession of the property for more than one year. The PPS Lease was only created once the lessee's or bailee's possession extended beyond one year.

Issues you need to be aware of

Change to registration requirement

It is important to remember that the Act does not affect leases or bailments entered into or registered on the PPSR before the Act came into force (being before 20 May 2017).

For example, an 18-month lease entered into on 19 May 2017 must be registered on the PPS Register. A similar lease entered into after 20 May 2017 need not be registered on the PPS Register.

When reviewing searches of the PPS Register, you will need to be aware of the differences between the old and new definitions of PPS Lease. Transactions of a sort that were previously recorded on the register before the Act began may not be there anymore. Your customers or business partners may be in possession of goods that they do not own where the true ownership of them will no longer be required to be registered.

The shift in the administrative burden that changes create

The Act changes the administrative burden placed on those responsible for registering security interests.

The administrative burden is:

  • decreased because indefinite term leases and bailments need not be registered until or unless it is believed, on reasonable grounds, the lease or bailment will extend beyond two years; but
  • increased because those responsible for registering PPS Leases are required to track indefinite term leases and bailments to ensure registration occurs if they extend beyond two years.

Next steps

Businesses should review their existing policies and procedures for registering PPS Leases.

If you would like to discuss these amendments and their impact on your business or your PPSA obligations generally, please contact one of our experts.

Footnotes
  1. Explanatory Memorandum, Personal Property Securities Amendment (PPS Leases) Bill 2017, 2.
  2. Explanatory Memorandum, Personal Property Securities Amendment (PPS Leases) Bill 2017, 2.

For further information, please contact:

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