A case study about a heavy vehicle hirer who doesn't register an indefinite lease on the PPSR. Includes information about hire and rental, PPS leases and bailments.
Leases, bailments and consignments are often arrangements which involve handing over your goods to someone else on a temporary basis in exchange for payment, for example:
- a lease would include hiring out a portable crane to a construction company at a cost for it to use in the construction a large building.
- a bailment would include a farmer entering into an arrangement with a grain storage facility to temporarily store grain before retrieving it for sale.
- a consignment would include an artist who had an arrangement with a gallery to display and sell the art on their behalf in exchange for a portion of the sale price.
These are of general examples of lease, bailment and consignment arrangements and will not normally be examples of registerable security interests. Whether or not these types of arrangements create security interests that can be registered on the PPSR can be complicated. It is recommended you seek legal advice on this matter if you think it impacts you.
How registering your security interest can help protect you
If your lease, bailment or consignment arrangement is an security interest that can be registered on the PPSR, it is important you do so. Failing to register a security interest on the PPSR can result in you losing your goods. Most of these types of arrangements create special types of security interests known as purchase money security interests (PMSIs). These types of interests give you a super priority giving you a better chance of getting your goods back if your customer doesn't pay. For more information, see Is my security interest a PMSI?
When is a lease, bailment or consignment a security interest?
A lease, bailment or consignment can be a security interest in two different ways:
- It's a standard security interest or
- It's a PPS lease or commercial consignment
1. The form of the lease, bailment or consignment arrangement means it meets the requirements of a standard security interest
You can make a PPSR registration for any form of arrangement that meets the definition of a security interest including leases, bailments and consignments. A ‘security interest’ is a type of right in personal property that can be registered on the PPSR. It is created by a transaction or agreement between two or more parties. This agreement has to:
- be consensual (usually when parties enter into a contract of some kind) and
- secure the repayment of a debt or performance of some sort of obligation.
Examples of lease, bailment and consignment arrangements which could meet this definition include:
- A lease arrangement involving the lease of a commercial equipment for a year with an obligation to buy the equipment at the end of the term. The security interest would arise if you granted a security interest in the equipment to secure payment for the equipment.
- A consignment arrangement where you consign your car to a car yard to sell on your behalf and you agree to pay a fee to the car yard even if you they don't sell the car. The security interest would arise if you granted an interest in your car to secure the repayment of that fee.
For more information about these types of security interests, see Why register on the PPSR for more information.
2. It meets the definition of what a 'PPS lease' or 'Commercial consignment' is under PPS law
Most lease, bailment and consignment arrangements don’t meet the standard definition of a security interest. Therefore, PPS law deems certain lease, bailment and consignment arrangements to be security interests anyway and these can be registered on the PPSR. Deemed security interests include ‘PPS leases’ and ‘commercial consignments’.
PPS lease has a very specific meaning, which has changed twice (in 2015 and 2017) since the PPS Act started. A PPS lease includes a lease or bailment arrangement where:
- the lessor or bailor is regularly engaged in the business of leasing or bailing
- the agreement is for
- a term of more than two years
- a term of up to two years that has automatic or optional renewals that can or will exceed two years
- an indefinite term but the lessee or bailee has had continuous possession of the goods for at least two years.
- for bailments only - the bailee provides value (that is, some kind of payment)
If the lease or bailment started before 20 May 2017, other rules apply. For details, see Key legislative changes and key case law.
A lease that is part of a ‘pooling arrangement’ is not a PPS lease. This is a lease/hire arrangement where equipment passes between multiple users before being returned to the owner – e.g. lease and sub-lease of pallets for transporting goods.
Like PPS lease, commercial consignment has a very specific meaning under PPS law. A commercial consignment includes a consignment arrangement where:
- the consignor keeps some kind of an interest (such as ownership) in the goods they deliver to the consignee
- the consignee is tasked with selling, leasing or otherwise disposing of the goods in some way
- the consignor and the consignee both deal in these types of goods as part of their normal business.
An example of a commercial consignment arrangement includes an agreement between two car yards where one car yard has asked the other to sell one of their cars for them in exchange for a portion of the profits.
There are some exceptions to this, including agreements where goods are delivered to:
- an auctioneer to sell them, or
- a consignee whose creditors generally know is selling or leasing other people’s goods.
PPSR case studies
A case study about Utes-R-Us who leases a delivery van and registers their security interest on the PPSR.
Read our case study about a jewellery designer who uses the PPSR to help protect his interest in the jewellery he sells by consignment to another business.