Late last year we discussed the Personal Property Securities Act 2009 (PPSA) and the concept of protecting asset ownership of asset holders.
Updates to the definition of PPS leases
Amendments to the PPSA earlier this year have changed the meaning of PPS lease or bailment in section 13 of the PPSA. The aim of the changes is to further reduce the PPSA’s impact upon the short-term rental and hire industry.
Importantly, the changes only apply to leases or bailments of goods entered into from 20 May 2017.
From 20 May 2017 new leases or bailments of goods will only be deemed a PPS lease if the lease or bailment is for:
- a term of more than two years (including any option to renew); or
- an indefinite period and the lease actually runs for more than two years.
The changes will add a layer of complexity to the assessment of the validity of perfected PPS leases due to the different time periods for the deeming of PPS leases:
- leases predating 20 May 2017 (one year or for an indefinite term); or
- leases entered into from 20 May 2017 onwards (two years or indefinite term and running for more than two years).
What types of leases are unaffected?
The changes will not apply to long term high value hire and rental leases nor do they apply to leases which are an in substance security interest such as finance leases.
Protecting your security interests
Although the aim of the changes was to reduce the PPSA’s impact on the short-term rental and hire industry, delaying registration of an indefinite period lease until the lease has been operational for two years (and therefore deemed a PPS lease) is risky.
The delay could result in the loss of a PMSI super priority or result in the security interest in the personal property the subject of the leases vesting in the lessee, if the lessee is placed in liquidation or voluntary administration.
Lessors that consider that an indefinite term lease is likely to extend beyond two years, should register their security interests in a timely manner to obtain the PMSI priority under the PPSA and avoid the operation of the vesting provisions in the Corporations Act.