Earlier
this week I was asked to explain to one of our clients the position
the PPSA takes on Leasing and Hiring arrangements. In particular the
client wanted clarification on the duration of leasing arrangements
and gave, as an example, the situation where “some
customers hire our machines for 2 months but then decide to just keep
them for 5 months”.
Firstly,
I should probably explain that leasing and hiring arrangements fall
into a similar category to Retention of Title arrangements in that
they do not technically involve the creation of a security interest
but rather clarify an ownership position and the rights of the
hirer/supplier to recover their property in the event of any breach
of contract on the part of the lessee/buyer. With the PPSA's
emphasis on substance over form the rights of a leasing company to
recover their property is treated as a security interest and is now
covered under that Act.
PPS
Leases are defined under Section 13 of the PPSA (the wording for
which I’ve included at the end of this article should anyone enjoy
reading that sort of thing).
Briefly,
for goods that are required under the Act to be described by serial
number (primarily motor vehicles, watercraft, aircraft etc)
registration is appropriate where the lease is for 90 days or more
or where the lease is for a shorter period but allows for
being renewed or extended to such an extent that the total lease
period extends beyond 90 days.
For
goods that are not required to be described by
serial number the cut-off requirement for registrations extends to
periods of 12 months (or shorter periods that allow for
extensions/renewals which would take the overall period beyond 12
months).
Hirers
(and other suppliers) should be aware that when the Act refers to
serial numbered goods it is referring to specific types of goods.
Most goods have serial numbers stamped on them somewhere if you look
hard enough; however, only those stamped on motor vehicles,
watercraft, aircraft etc count as far as the Act is concerned.
It
should also be noted that while most of us think we have a pretty
good handle on what constitutes a ‘motor vehicle’ the PPSA
extends the ‘normal’ interpretation to include, for example, “a
piece of machinery or equipment that is equipped with wheels and
designed to be attached to, or towed by, a motor vehicle” (see
below for the PPSA Regulations Act's definition).
If
we use our client’s example scenario, “some
customers hire our machines for 2 months but then decide to just keep
them for 5 months” – if the goods in question are required to be
registered by serial number and the lessee is entitled under the
lease agreement to extend the lease in that fashion then our client
would be advised to register their security interest in the goods on
the PPSA Register and should do so at the outset. My advice in
these and other situations is that it
is better to have a registration you don’t need than to need a
registration you don’t have.
PPS
Leases are able to be registered as Purchase Money Security Interests
(PMSIs) which give the lessor a greater priority in their security
than holders of general security interests. For this to be
effective the registration must be lodged within 15 business days of
the lessee taking possession of the goods or, where the goods will be
used as inventory, before the lessee takes possession of the goods.
As
I threatened at the outset, the PPSA’s definition of PPS Leases is
as follows:
(1) A PPS
lease means a lease or bailment of goods:
(a)
for a term of more than one year; or
(b)
for an indefinite term (even if the lease or bailment is determinable
by any party within a year of entering into the lease or bailment);
or
(c)
for a term of up to one year that is automatically renewable, or that
is renewable at the option of one of the parties, for one or more
terms if the total of all the terms might exceed one year; or
(d)
for a term of up to one year, in a case in which the lessee or
bailee, with the consent of the lessor or bailor, retains
uninterrupted (or substantially uninterrupted) possession of the
leased or bailed property for a period of more than one year after
the day the lessee or bailee first acquired possession of the
property (but not until the lessee’s or bailee’s possession
extends for more than one year); or
(e)
for goods that may or must be described by serial number in
accordance with the regulations, if the lease or bailment is:
(i)
for a term of 90 days or more; or
(ii)
for a term of less than 90 days, but is automatically renewable, or
is renewable at the option of one of the parties, for one or more
terms if the total of all the terms might be 90 days or more; or
(iii)
for a term of less than 90 days, in a case in which the lessee or
bailee, with the consent of the lessor or bailor, retains
uninterrupted (or substantially uninterrupted) possession of the
leased or bailed property for a period of 90 days or more after the
day the lessee or bailee first acquired possession of the property,
(but not until the lessee’s or bailee’s possession extends for 90
days or more).
(2)
However, a PPS
lease does
not include:
(a)
a lease by a lessor who is not regularly engaged in the business of
leasing goods; or
(b)
a bailment by a bailor who is not regularly engaged in the business
of bailing goods; or
(c)
a lease of consumer property as part of a lease of land where the use
of the property is incidental to the use and enjoyment of the land;
or
(d)
a lease or bailment of personal property prescribed by the
regulations for the purposes of this definition, regardless of the
length of the term of the lease or bailment.
Meaning of motor vehicle
(1)
For the definition of motor vehicle in section 10 of the Act,
personal property described in sub regulation (2) or (3) is a
motor vehicle.
(2)
The personal property:
(a)
is built to be propelled, wholly on land, by a motor that forms part
of the property; and
(b)
either:
(i)
is capable of a speed of at least 10 km/h; or
(ii)
has 1 or more motors that have a total power greater than 200 W;
and
(c)
has any of the following:
(i)
a vehicle identification number;
(ii)
a chassis number;
(iii)
the manufacturer’s number; and
(d)
does not run on rails, tram lines or other fixed path.
(3)
The personal property:
(a)
is capable, when being towed by, or attached to, a motor vehicle, of
travelling at a speed greater than 10 km/h; and
(b)
is a piece of machinery or equipment that is equipped with wheels and
designed to be attached to, or towed by, a motor vehicle; and
(c)
has any of the following:
(i)
a vehicle identification number;
(ii)
a chassis number;
(iii)
the manufacturer’s number.
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