Leasing property – the importance of registering your security interests

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With the number of businesses expected to collapse in 2023 nearly doubling on numbers from previous years, the importance of protecting your security interests in leased property has never been higher.

If leasing property is regularly part of your business, the requirements of the Personal Properties Securities Act 2009 (Cth) (the Act) ought to be front of mind as if it applies, failure to understand your obligations under the Act may unwittingly alter the priority of interests between you, the lessee and related third parties.

A lease of property will be subject to the Act if it meets the definition of a “PPS Lease” under the Act. The Act imposes certain requirements on PPS Leases including registration on the Personal Properties Securities Register (PPSR). If you fail to comply with the Act or register your lease, you may expose yourself to issues of ownership especially in circumstances where the lessee enters into administration or liquidation. 

Do I have a PPS Lease?

The first key question is whether your lease is a PPS Lease and this is dependent on the year your lease was entered into.

For leases entered into on or after 20 May 2017, the lease will be considered a PPS Lease if:

1. the lease is for a term of at least two years; OR
2. the lease is for an initial term of up to two years and is automatically renewable, or is renewable at the option of the parties and the total of the terms might exceed two years; OR
3. the lease is for a term of less than two years, or for an indefinite period of time and after having been entered into, the lessee (with consent) retains uninterrupted or substantially uninterrupted possession of the property for more than two years.

For leases entered into before 20 May 2017, the lease will constitute a PPS Lease if:

1. the lease is for at least one year; OR
2. the lease if for a term of up to one year or an indefinite period and with the lessor’s consent, the lessee retained uninterrupted or substantially uninterrupted possession of the property.

Is the PPSA engaged?

A second consideration is whether the lease is excluded by Subsection 13(2) of the PPSA. Subsection 13(2) operates to exclude a lease from the definition of “PPS Lease” where the lessor is not regularly engaged in the business of leasing goods. This is a question of fact and turns on whether or not, at the material time (being the time the lease is entered into), leasing goods was a proper component of your business.[1]

PPS Leases and Registration

If you have a PPS Lease, your arrangement is deemed to be a security interest which can be registered on the PPSR, and it is especially important you do so. 

Failing to register your security interest on the PPSR may result in you losing your goods. Under the Act, registration perfects the security interest affording you priority and provides notice of your interests to the public.

In the event you fail to register your PPS lease, meaning you are left with an unregistered lease, and the lessee goes into liquidation or administration, the leased property would vest in the hands of liquidators or administrators.

On the other hand, in the same circumstances where you have a registered PPS Lease, ownership of the leased property will remain with you. 

Other additional factors which may influence whether you have a PPS Lease include whether you operate business inside or outside of Australia and whether the assets are fixtures.

Key takeaway

If regularly engaged in the leasing of property, it is imperative you are acutely aware of the requirements to register your interests under the Act or you may expose yourself to significant losses.

If you require any advice in relation to PPS Leases or security interests generally, do not hesitate to reach out to our team.

[1] Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed) v General Electric International Inc [2016] NSWSC52at [46].