PPSA update: minimum term of PPS Lease now two years
|Services:||Banking & Finance, Corporate & Commercial, Restructuring & Insolvency|
|Industry Focus:||Financial Services|
|Date:||18 May 2017|
|Author:||Laura Holmes, Graduate Lawyer & David Carter, Partner|
On 11 May 2017, Federal Parliament passed the Personal Property Securities Amendment (PPS Leases) Bill 2017 (PPS Amendment) following its introduction on 1 March this year.
What does the PPS Amendment do?
The PPS Amendment modifies the meaning of a ‘PPS Lease’ under section 13 of the Personal Property Securities Act 2009 (Cth) (PPSA) by extending the minimum term of the lease or bailment from more than one year to more than two years. This means that a fixed term lease or a bailment of goods will only need to be registered on the PPS Register if it exceeds two years. The fixed term includes any option to renew.
Similarly, a lease or bailment of an indefinite term will only be deemed a ‘PPS Lease’ when it actually runs for a period of more than two years. In this case, registration will need to take place toward the end of two years, rather than upon commencement. Lessors still have the option to lodge a PPS registration prior to commencement of the indefinite period lease agreement.
These changes only apply to leases and bailments made after the PPS Amendment comes into force, which will be once the legislation receives Royal Assent. This is expected to occur over the coming days. All pre-existing PPS arrangements are not affected, and will continue as usual.
A point to note, however, is that the PPS Amendment does not change the purchase money security interest (PMSI) registration timing period. Therefore, if the lessor has reasonable grounds to believe that the lease would extend beyond two years and wants to obtain PMSI priority, the lessor will need to register its interest in accordance with the existing timeframes referred in section 62 of the PPSA.
There are also potential vesting issues in an insolvency situation under section 588FL of the Corporations Act 2001 (Cth) for those who wait to register until close to the end of the two year period. We will consider these issues and provide a further update once the legislation comes into effect.
What are the implications of the PPS Amendment?
The PPS Amendment will see a significant reduction in the number of PPS registrations and consequently the risks associated with absent registrations. These reforms represent welcome relief for businesses in the hire and rental industry involved with high volumes of short term leases.
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