The Australian Government introduced the Personal Property Securities Amendment (PPS Leases) Bill in the House of Representatives. After passing through the Senate the proposed changes became law with the enactment of the Personal Property Securities Amendment (PPS Leases) Act 2017 on 20 May 2017.

The date is important and has many repercussions.

What leases are affected by the changes?

Any leases or bailments entered into after 20 May 2017 are subject to the new PPS lease definition.

What has changed?

The minimum length of a PPS lease has been extended from more than one year, to more than 2 years.

The changes mean that anyone who enters into a lease (or bailment) for two years or less (including options to renew) will no longer need to register as the agreement is no longer considered a PPS Lease.

If your agreement is entered into after the 20^th of May and is for more than 2 years it would be considered a PPS Lease and should be registered. However, if your agreement is for two years or less, but continues past the agreed term, it will become a PPS Lease when it extends beyond two years and should be registered at that time.

It is also important to notes that a lease with an open ended (indefinite) term will not be deemed to be a PPS lease unless it runs for a period of more than two years.

Are agreements entered into prior to 20 May 2017 affected by the changes?

No, agreements entered into prior to 20 May 2017 are not affected by the changes.

If you entered into an agreement prior to 20 May 2017 your lease or bailment will be considered to create a security interest in the property that is leased or bailed provided the agreement is for an indefinite period or when the agreement is for a term (or terms) of 1 year or more.

In addition, an agreement entered into prior to 20 May 2017 that is for a shorter period than 1 year will also be considered to be a PPS lease or bailment if the lessee or bailee continues to retain substantially uninterrupted possession of the relevant property with the consent of the lessor or bailor after the one year period has expired.

You do not need to amend any existing registrations for leases or bailments of goods that were entered into prior to 20 May 2017. In addition, registrations of leases and bailments entered into prior to 20 May 2017 should proceed in the same way as they would have prior to the changes coming into effect.

What affect will the changes have on PPS Leases entered into after 20 May 2017?

Whether you are affected by the changes will depend on whether your agreement is a Fixed Term PPS or Indefinite Term PPS lease or bailment.

• An agreement for a period of less than 2 years – IS NOT a PPS Lease and no longer needs to be registered;
• An agreement for more than 2 years – IS a PPS Lease and should be registered;
• An agreement for 2 years or less that exceeds initial term – Becomes a PPS lease when it extends beyond 2 years and should be registered at that time; and
• An indefinite term PPS Lease – IS NOT a PPS lease UNTIL it has run for a period of more than 2 years.

When do I need to register an Indefinite Term Lease or Bailment?

You may register a lease or bailment with an indefinite term once you have reasonable grounds to believe that the agreement in question will exceed a two year period. That time may occur prior to the lease being entered into or as the lease approaches the two year period.

In practice how does an Indefinite Term Lease become a PPS Lease?

Example 1

You entered into an Indefinite Term Lease on plant machinery on 21 May 2017, unless the general definition of a security interest applies to your arrangement (for example, if you also entered into a short term financing lease) if you were to return the machine 1 year later then the lease will NOT be classified as a PPS lease as the total actual term being less than 2 years.

Example 2

You entered into an Indefinite Term Lease on plant machinery on 21 May 2017. However, you did not return the machinery after a period of 2.5 year. Your agreement became a PPS Lease when you reached 2 years and 1 day.

Can a lease still be a security interest even if it is not a PPS Lease?

In certain circumstances a lease may still be caught by the general definition of a security interest set out in section 12 of the PPSA, even if it is not deemed to be a PPS Lease. If you think you may have a lease that covered by section 12, we recommend you seek legal advice to clarify your position and determine whether the changes affect you or your business.

It is important to remember that the PPSR is an essential risk management tool for your business. We recommend you seek proactive legal advice to ensure you understand how these changes may affect you now and in the future.

If you or someone you know wants more information or needs help or advice, please contact us on 02 8325 1520 or email info@cappellorowe.com.au.