Business owners may be uncertain as to whether the arrangement they have is a PPS lease (as defined), whether they should register a security interest on the PPSR and what benefits are there in registering the interest.
What are PPS Leases?
“PPS lease” is defined in the PPSA to be a lease or bailment of goods:
- for a term of more than one year; or
- for an indefinite term; or
- for a term of up to one year that is automatically renewable, or that is renewable at the option of one of the parties, if the total of all the terms might exceed one year; or
- for a term of up to one year, where the lessee retains uninterrupted (or substantially uninterrupted) possession of the leased property for a period of more than one year after the lessee first acquired possession of the property (but not until the lessee’s possession extends for more than one year).
A PPS lease will not arise if a lessor or bailor is not regularly engaged in the business of bailing goods. Therefore, care needs to be taken to analyse each arrangement to determine whether a PPS lease does in fact exist and whether there is another type of security interest which should be registered.
The fact that a PPS lease is a “deemed” security interest means that there is no need for the parties to agree that a security interest arises nor is there a requirement for the PPS lease to secure the payment of money or performance of an obligation as required for other security interests.
When should you register a PPS lease on the PPSR?
Registrations of PPS leases on the PPSR must meet certain timing requirements in order to have priority over other security interests in the same personal property.
If a PPS lease exists, steps should be taken as soon as possible to register the security interest on the PPS to obtain priority in the property.
The timing requirements for the registration of a purchase money security interest either require registration before the grantor of the security interest obtains possession of the property (inventory) or within 15 business days of the grantor obtaining possession of the property (not inventory). Be aware that the PPSA has its own definition of inventory and which should be considered in the context of a PPS lease.
What are the benefits of registering a PPS lease on the PPSR?
The greatest benefit of registering a PPS lease is the fact that the registration may have highest ranking priority in the property and give you or your client rights over other interests in that property.
This means a properly registered purchase money security interest can potentially take priority over securities which were registered before the lessor’s security interest (if the right timing is not met).