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Changes to PPS Leases

Published on June 20, 2017 by Nicholas Huang and Selwyn Black

The definition of PPS Lease under the Personal Property Securities Act 2009 (Cth) (PPSA) was amended with effect on 20 May 2017. This change will have a particular impact on the need to register commercial leases of goods on the Personal Property Securities Register (PPSR).

Outline of PPS Leases

1) A PPS Lease includes a lease of goods that meet certain criteria under the PPSA.

2) A PPS Lease is a security interest.

3) Lessors can lose their interest in a PPS Lease if they fail to perfect their security interest.

4) The most common way of perfecting a security interest is to register that interest on the PPSR.

5) A costly example of the failure to register a PPS Lease is analysed in our earlier article found here.

What are the amendments?

6) Leases of goods for an indefinite term are no longer automatically defined to be PPS Leases.

7) The minimum leasing period for a PPS Lease has been increased from 1 year to 2 years.

What are the consequences of the amendments?

8) Many leases of goods which would have been PPS Leases under the old definition will no longer be PPS Leases under the new definition.

9) This may reduce the need for commercial leasing businesses to register these leases on the PPSR.

10) Businesses will still need appropriate processes in place to identify when leases should be registered on the PPSR. For example, it is common for goods to  be initially leased for a term of less than two years but the lessor later agrees to the lessee retaining possession of the goods for a period of over two years.

11) Leases of goods can still be security interests under the general definition of security interest in the PPSA. The definition of PPS Lease not applying to a particular lease does not guarantee that the lease is not a security interest which must still be perfected in order to protect the lessor.

12) The amended definition of PPS Leases applies to leases entered into on or after 20 May 2017. The old definition of PPS Lease will still apply to leases of goods entered into before that date.

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