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Changes to PPS Leases under Personal Property Securities Act (PPSA)

22 May 2017
Read Time 3 mins reading time

The Australian Parliament recently passed the Personal Property Securities Amendment (PPS Leases) Act 2017 (Cth) (Act), which amends the Personal Property Securities Act 2009 (Cth) (PPSA) to substantially reduce its regulatory impact on short-term hire and rental businesses.

The interests of lessors or bailors under PPS leases are deemed to be security interests for the purpose of the PPSA, and these security interests must be registered on the Personal Property Securities Register (PPSR) in order to be perfected.  Previously, the definition of a “PPS lease” included leases and bailments of goods for terms that were either indefinite or for more than one year. The relatively narrow scope of this definition required short-term hire businesses to pay close attention to the length of the hire periods of such goods in order to avoid the need to register their security interests.

The changes to the PPSA came into effect on Saturday, 20 May 2017. Accordingly, any leases and bailments entered into on or after Saturday, 20 May 2017, will be subject to the new PPS lease definition. The changes to this definition are set out in the table below.

 

Type of Term of Lease or Bailment of Goods Current Position Previous Position
Fixed term Will only be deemed to be a PPS lease if it is for a fixed term of more than two years Was a PPS lease if it was for a fixed term of more than one year
Indefinite term Will not be a PPS lease unless and until it runs for more than two years Was automatically a PPS lease
Term of up to two years that is automatically renewable, or renewable at the option of one of the parties Will be a PPS Lease if the total of all the terms might exceed two years A lease or bailment of goods of up to one year that was automatically renewable, or renewable at the option of the parties, was a PPS lease if the total of all the terms might have exceeded one year
Term of up to two years (or a lease for an indefinite term) Will be a PPS Lease if the lessee or bailee retains uninterrupted possession of the goods with the consent of the lessor or bailor for a period of more than two years, but only at the point when the possession of the lessee or bailee has extended for more than two years A lease or bailment of goods for a term of up to one year, which exceeded a one year period of uninterrupted possession with the consent of the lessor or bailor, was a PPS lease after the lessee or bailee had possession for more than one year, but only at the point when the possession of the lessee or bailee had extended for more than one year

Importantly, if a lease or bailment of goods does not constitute a PPS lease (and does not otherwise constitute an in-substance security interest under the PPSA), the lessor or bailor will not be required to protect their security interests by registration on the PPSR. Accordingly, the reduced scope of the definition of PPS leases under the PPSA significantly minimises the administrative and financial burden for short-term hire and rental businesses, which are now afforded longer periods of time before being required to protect their security interests in leased goods through registration on the PPSR.

Application of the amendments to the PPSA

As noted above, the amendments to the PPSA only apply to leases or bailments that are entered into on or after 20 May 2017. The changes do not operate retrospectively, and do not impact any PPS leases or bailments that were entered into, or are currently on foot under, the ‘old’ regime.

For further information regarding the impact of these amendments to your business, please contact Kelly Dickson.

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Changes to PPS Leases under Personal Property Securities Act (PPSA)

22 May 2017

The Australian Parliament recently passed the Personal Property Securities Amendment (PPS Leases) Act 2017 (Cth) (Act), which amends the Personal Property Securities Act 2009 (Cth) (PPSA) to substantially reduce its regulatory impact on short-term hire and rental businesses.

The interests of lessors or bailors under PPS leases are deemed to be security interests for the purpose of the PPSA, and these security interests must be registered on the Personal Property Securities Register (PPSR) in order to be perfected.  Previously, the definition of a “PPS lease” included leases and bailments of goods for terms that were either indefinite or for more than one year. The relatively narrow scope of this definition required short-term hire businesses to pay close attention to the length of the hire periods of such goods in order to avoid the need to register their security interests.

The changes to the PPSA came into effect on Saturday, 20 May 2017. Accordingly, any leases and bailments entered into on or after Saturday, 20 May 2017, will be subject to the new PPS lease definition. The changes to this definition are set out in the table below.

 

Type of Term of Lease or Bailment of Goods Current Position Previous Position
Fixed term Will only be deemed to be a PPS lease if it is for a fixed term of more than two years Was a PPS lease if it was for a fixed term of more than one year
Indefinite term Will not be a PPS lease unless and until it runs for more than two years Was automatically a PPS lease
Term of up to two years that is automatically renewable, or renewable at the option of one of the parties Will be a PPS Lease if the total of all the terms might exceed two years A lease or bailment of goods of up to one year that was automatically renewable, or renewable at the option of the parties, was a PPS lease if the total of all the terms might have exceeded one year
Term of up to two years (or a lease for an indefinite term) Will be a PPS Lease if the lessee or bailee retains uninterrupted possession of the goods with the consent of the lessor or bailor for a period of more than two years, but only at the point when the possession of the lessee or bailee has extended for more than two years A lease or bailment of goods for a term of up to one year, which exceeded a one year period of uninterrupted possession with the consent of the lessor or bailor, was a PPS lease after the lessee or bailee had possession for more than one year, but only at the point when the possession of the lessee or bailee had extended for more than one year

Importantly, if a lease or bailment of goods does not constitute a PPS lease (and does not otherwise constitute an in-substance security interest under the PPSA), the lessor or bailor will not be required to protect their security interests by registration on the PPSR. Accordingly, the reduced scope of the definition of PPS leases under the PPSA significantly minimises the administrative and financial burden for short-term hire and rental businesses, which are now afforded longer periods of time before being required to protect their security interests in leased goods through registration on the PPSR.

Application of the amendments to the PPSA

As noted above, the amendments to the PPSA only apply to leases or bailments that are entered into on or after 20 May 2017. The changes do not operate retrospectively, and do not impact any PPS leases or bailments that were entered into, or are currently on foot under, the ‘old’ regime.

For further information regarding the impact of these amendments to your business, please contact Kelly Dickson.