Important changes to PPSA Leases – what you need to know if you hire equipment
The Personal Property Securities Act 2009 (Cth) (PPSA) sets out the requirements for registering a security interest over plant and equipment, the subject of a lease or hire arrangement. In order for a hire business to register a PPSA security interest over its plant and equipment, that equipment must fall within the definition of a “PPS Lease”. Only then will the hirer be entitled to register for the protections offered for hired equipment under the PPSA.
A Bill has been introduced to parliament on 1 March 2017 proposing changes to the PPSA that affect these lease and hire arrangements. The Bill proposes changing the current definition of what a “PPS Lease” constitutes. Currently, the PPSA provides that a PPS Lease is a lease of goods for over one year or for an indefinite term, but that the following additional requirements apply:
- The lease must be from a lessor who runs a business of leasing goods (i.e. this is not a one off transaction);
- The lease cannot be for consumer property provided as part of a lease of land where the use of the property is incidental to the use and enjoyment of the land (i.e. there must be a separate arrangement or lease for goods not connected to a lease of premises).
The proposed changes to the definition of PPS Lease have the effect that:
- The lease of goods must be for a period exceeding two years (which can include any options to extend);
- Any lease for an indefinite term will only become a PPS Lease if the consumer or lessee actually has possession of the goods for at lease two years; and
- The additional requirements under the current legislation will no longer apply.
The changes will only apply once the Bill has been accepted as law, and not retrospectively.
Hirers will need to ensure that when these changes come into effect, their arrangements with consumers to hire equipment cover at least a term of two years. We would recommend that these arrangements are always made for a fixed term, with options to extend the arrangement if desired, to ensure there is no argument that the equipment has not been in the actual possession of the consumer for at least two years.
If you have any questions regarding the PPSA or require assistance registering any security interests, contact McLaughlins Lawyers.
Author: Sonaaz Farhadi-Fard
Director: Ian Kennedy