Is your short term hiring lease still protected on the PPSR?

As part of a series of ongoing changes to the Personal Property Securities Act 2009 (Cth), on 20 May 2017 the Australian Government introduced amendments to change PPS leases to only include short term leases that extend beyond two (2) years. 

What is the PPSR?

The Personal property Securities Register (‘PPSR’) registers security interests over personal property, which essentially translates to any property that is not land or a fixture to land.

A security interest secures either payment or the performance of an obligation. It includes examples such as retention of title clauses in sales agreements and financing leases where personal property is leased for payments that cover the cost of the personal property and the lessee has ability to acquire title.

What is a PPS Lease?

A PPS Lease is formed when providing assets on lease (or bailment) and the arrangement has:

• a term of more than two (2) years; or
• crosses the two (2) year threshold by:

(i)    exceeding the agreed term;
(ii)   having an indefinite term and continuing past the two (2) year mark; or
(iii)  a lessor having reasonable grounds to believe that an indefinite term lease will exceed a two (2) year period.

Examples of PPS Leases may include the following:

• Lease or hire of personal property such as plant and equipment (i.e. excavation machinery for construction); or
•  Lease of assets between related parties for asset protection purposes.

Do you still need to register your lease on the PPSR?

On 1 March 2017 the Commonwealth Parliament introduced the Personal Property Securities (PPS Leases) Amendment Bill 2017 (‘Bill’) to address issues that arose after the Personal Property Securities Act 2009 (Cth) (‘Act’) was introduced.

As of 20 May 2017 the Bill is now operational under the name Personal Property Securities Amendment (PPS Leases) Act 2017 (Cth) (‘PPS Leases Act’).

Impact of the amendments

As a result of the PPS Leases Act, leases and bailments entered into after 20 May 2017 are subject to the new PPS leasing rules.

What are the changes?

• Under the previous regime: the minimum duration for PPS leases had to exceed one (1) year.
• Under the PPS Leases Act: the minimum duration period has been extended to two (2) years.

Any agreement entered into after 20 May 2017, will become a PPS Lease if the agreement:

• has a term of more than two (2) years; or
• crosses the two (2) year threshold by:

(i)   exceeding the agreed term;
(ii)  having an indefinite term and continuing past the two (2) year mark; or
(iii) a lessor having reasonable grounds to believe that an indefinite term lease will exceed a two (2) year period.

Once the lease crosses the two (2) year point, the lessor can protect its interest by registering the arrangement as a PPS Lease. If the lease does not satisfy the two (2) years threshold, the lease will no longer be able to be registered on the PPSR as a PPS Lease.

Note that if the lease is shy of the two (2) year mark, and presuming the general definition of security interest does not apply to the arrangement, the PPS Leases Act will not affect the arrangement.

How are pre-existing registration affected?

No changes apply to leases and bailments entered into before the amendments came into effect.

If your lease was entered into prior to 20 May 2017, a PPS lease was created by having a term of at least one (1) year or more.

Amendment Pattern

The new amendments were motivated by the 2015 Review of the Personal Property Securities Act 2009 Final Report (‘Final Report’). The changes reduce the number of agreements that qualify as PPS Leases in an attempt to remove uncertainty surrounding bailment arrangements that are typically part of much larger commercial transactions that last for an indefinite period.

The commencement of the amendments form part of an ongoing pattern to reduce the types of securities that require registration, the first example being the Personal Property Securities Amendment (Deregulatory Measures) Act 2015 (Cth), which extended the threshold from ninety (90) days to the one (1) year benchmark that stood until the latest round of amendments.

It is likely that further significant reforms will take place based on the recommendations in the Final Report.

While all existing leases remain unaffected by the change, it is important to be aware that moving forward new rules apply to the registration of leases and bailments on the PPSR.

If you are concerned about protecting your future short term hiring leases on the PPSR, you should be sure to seek legal advice. Ramsden lawyers are experts in all aspects of short term leasing and regularly assist our corporate and commercial clients with PPSR rights and obligations.