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PPS Leases Bill

29 March 2017
Blog entry

A Bill was introduced into the Parliament on 1 March 2017 by the Australian Government that would change the meaning of PPS Lease in the Personal Property Securities Act 2009 (PPS Act).

The Explanatory Memorandum says:

This Bill would amend section 13 of the Personal Property Securities Act 2009 to extend the minimum duration of PPS leases from more than one year, to more than two years. This Bill would also amend the Act to provide that leases of an indefinite term will not be deemed to be PPS leases unless and until they run for a period of more than two years.

This Bill would significantly reduce the regulatory impact which the Act is having on short term hire and rental businesses, the majority of which are small to medium enterprise. The hire and rental sector almost exclusively uses indefinite term leases which usually run for less than a week and rarely exceed a period of two years. Very few hire and rental industry related transactions would be caught by the amended provision due to the increased minimum duration. An amended section 13 of the Act would continue to appropriately capture longer term high value hire and rental industry leases. The amendments would not modify the operation of the Act in relation to leases which are in-substance security interests.”

If the Bill becomes law, leases (and bailments) entered into after the changes take effect would not be deemed to be security interests under the PPS Act if they are for periods of two years or less, instead of one year or less (including options for renewal etc.).

The Bill also provides that leases of an indefinite term would not be deemed to be PPS Leases until they run for a period of more than two years. This would mean that, should the Bill become law, leases (and bailments) of an indefinite term can be registered towards the end of the two year period instead of having to be registered at the start. Additionally, if a business does not suspect that a lease for an indefinite term—entered into after the proposed changes commence—will last for two years then no registration should be made.

For lessors currently making registrations over PPS Leases—because they lease on terms that meet the current definition but not the one provided in the Bill—if the Bill become law, a registration should not be made as the agreement would no longer be considered a PPS Lease.

The PPSR is an important risk management tool for business. There are instances where a lease might still meet the general definition of a security interest (s12 PPSA) even if it is not a PPS Lease, so if the Bill does become law, you should seek professional advice if these changes could impact your business.

We will provide updates on the Legislation page of our website ppsr.gov.au.