Are you in the hire or rental business? The law is about to change — and it’s good news
On 11 May 2017, both houses of Parliament passed the Personal Property Securities Amendment (PPS Leases) Bill 2017 with broad support across the political divide.
Two key changes are being introduced:
- The minimum length of a type of personal property security interest, a PPS Lease, is being extended from more than one year, to more than two years.
- Leases of an indefinite term will no longer be PPS leases unless they run for more than two years.
What is a personal property security interest?
A personal property security interest, in simple terms, is a stake that someone has in any piece of property (except real estate) which ensures the payment of a debt or fulfilment of a legal obligation. For example, it is common to finance a car purchase with a secured loan allowing the seller to reclaim the car if a customer defaults or goes insolvent. In 2009, a new Personal Property Security framework (the PPS framework) was introduced for these securities through the Personal Property Securities Act 2009. This replaced a complex and confusing system of more than 70 different pieces of legislation. The PPS framework applies Australia-wide (unlike the earlier state-based approach) and includes on online Register, which, in most cases, businesses must use to protect and publicise their personal property security interest.
How has this applied to hire or rental businesses?
As well as covering situations like car financing, the PPS framework also covered the work of equipment-for-hire and short-term rental businesses. When hiring out equipment such as chainsaws or trailers, it often makes sense for these businesses to have leases of ‘indefinite term’ with customers. This ensures that customers have equipment as long as they need it without the need to bother with formal, day-by-day, extensions of a fixed-term lease. Because these leases are covered by the PPS framework, businesses are forced to choose between the burden of registering all these short-term leases, and the risk of losing their equipment if they don’t register. In several cases, equipment-for-hire businesses have lost property that they own when customers have defaulted or become insolvent.
What does the law change mean?
This new law change will mean that leases of less than two years, whether fixed-term or indefinite, will no longer need to be registered to protect the interests of the business.
Key things to note:
- The Personal Property Securities Amendment (PPS Leases) Bill 2017 will come into effect on the day after it is given Royal Assent. This could happen at any time.
- The new law will only apply to leases entered into after the new law comes into force. For earlier leases, the PPS framework still applies and security interests must be registered to be protected
- The PPS framework will still cover the work of rental and hire businesses when they use longer term (more than two year) leases.
If you think these changes could affect you, please seek professional advice tailored to the particular circumstances of your business.