PPSA simplification: short term leases under one year

  • An amendment to the PPSA, dealing with short term leases, will commence soon.
  • Generally, leases of serial numbered goods (motor vehicles, aircraft, watercraft) will no longer require registration if the term is a year or less, replacing the former 90 day rule for these kinds of goods.
  • But there are traps for the unwary, particularly if the lease term is not specified in the documents.

Leases between 90 days and 1 year no longer deemed PPS leases

Under the Personal Property Securities Act 2009, leases for more than one year that satisfy certain conditions are ‘PPS leases’, and so are deemed to be ‘security interests’, even if they don’t secure payment or performance of an obligation. But in the original version of the Act, the one year period is shortened to 90 days for serial numbered goods: motor vehicles, aircraft and watercraft. So PPS registrations were often required short term operating leases of these goods, with terms between 90 days and 1 year.

The Personal Property Securities Amendment (Deregulatory Measures) Act 2015 removes the special rule for serial numbered goods. The term that can trigger deemed classification as a security interest will now be one year, for all goods. This should reduce the regulatory burden for short term equipment lessors.

The amending Act will come into force, at the latest, on 25 December this year. But the Government aims to bring it in earlier and, as of this morning (23 September), the news section of the PPS Register website still says that the Government is working towards having it in force by 1 October.

** Update – as of 24 September, the Government has confirmed that 1 October will be the starting date.

Traps for the unwary

Unfortunately, this doesn’t mean short-term lessors can always disregard the PPSA. Short term lessors should still consider whether their leases might be security interests. Two points particularly should be noted.

’In substance’ security interests

Lessors should still consider whether the short term lease transaction is one that, in substance, secures payment or performance of an obligation. For example, if the lessor is retaining title to secure an obligation of the lessee to pay the purchase price for the goods in due course (such as a short hire purchase arrangement). If, in substance, it secures payment or performance, it will be a security interest, and so should be perfected by a registration on the PPS Register.

Indefinite terms

Leases for an indefinite term can still be deemed to be PPS leases. So if the parties expect that serial numbered goods, such as a motor vehicle, will be leased for a period less than one year, but the term is not actually stated in the lease documentation, the lease will be for an indefinite term and may be deemed to be a security interest, and so should be perfected by a registration on the PPS Register.

More cases: digest of PPSA cases

I have added another recent case to my digest of reported Australian cases – please go to PPS cases for a link to the digest.

The case, Capital Finance Australia Limited v Clough [2015] NSWSC 1327, is another one where a person registered a financing statement claiming a security interest which she did not actually hold, had it removed, then registered it again, leading the court to order both removal of the financing statement and that no new ones be registered. There has been anecdotal evidence of vexatious registrations claiming claims security interests to which the party making the registration is not entitled, and increasingly case law that recognises the existence of this problem.

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