On 19 May 2017, legislation amending the meaning of PPS Lease under the Personal Property Securities Act 2009 (Act) received royal assent and is now law. The new law, means that indefinite leases and leases of less than two years, are no longer required to be registered on the Personal Property Securities Register (PPSR).
Generally speaking, the PPSR operates under the principle of “first in, best dressed.” This means that, subject to certain exceptions, ownership rights are prioritised by the order of registrations. A PPS Lease therefore can protect an owner’s or mortgage-holder’s property against another claim of ownership. If there is an ownership dispute regarding leased equipment, the earliest registrant in time is generally first in line to retain ownership of that equipment, even in circumstances where this registrant was not the initial owner. Further, unperfected or incorrectly entered registrations have even lower priority than later, but perfected, registrations.
Previously, leases and bailments of greater than one year, or of indefinite duration, were deemed to be PPS Leases and therefore required registration on the PPSR. For example, a PPS Lease automatically arose where a hire company leased equipment to a construction company for an indefinite period that concludes “on the termination of the lease”, even where the lease ultimately ended within a week. If, during that week, the construction company became subject to external administration, a liquidator and receiver may claim the equipment to pay creditors.
Similarly, commercial goods not affixed to the property, but owned by the landlord, within a leased commercial premises, were deemed PPS Leases where the lease was for a period of more than one year (including any options to renew).
Critics, particularly those in the hire industry, had argued that indefinite leases should not be considered PPS Leases. Previously, leases lasting as little as one day could be captured under the Act. This forced property owners to register a security interest, even in circumstances where it would ordinarily be unwarranted.
With the legislation receiving royal assent, leases and bailments made for periods of less than two years (including options for renewal) are not considered security interests under the Act. Similarly, leases of an indefinite term are no longer considered PPS Leases until they have lasted over two years. Therefore, leases and bailments of an indefinite term only require registration towards the end of the two-year period.
If you would like assistance in PPSR enquiries or registrations, please contact: