Generally, lessors or bailors are the owners of the the subject of the or bailment. Both lessees and bailees are the persons given , but not , of the property. Lease holders and Lessors: However, a lessee usually enjoys exclusive What you should know about the possession of the property for his or her own use; whereas a bailee is generally not able to Securities use the property in its possession or its use is (PPS) Register determined by the bailor.

LEASES AND BAILMENTS UNDER THE PERSONAL WHAT IS A PPS LEASE? PROPERTY SECURITIES ACT 2009 (CTH) A ‘PPS lease’ is a lease or bailment that is regarded as creating a security interest in the The PPS Act is a about security interests in property property leased or bailed when the arrangement other than real . A security interest is an interest in is for: personal property that in substance secures payment of • an indefinite period a debt or other obligation. This definition incorporates • a term or terms of one year or more for most standard forms of security such as mortgages and goods, or charges. It also covers transactions not currently • a term or terms of 90 days or more in the case considered traditional security interests, notably certain of motor vehicles, boats or aircraft. lease and bailment arrangements. However, an agreement for shorter periods will Security interests may arise from such arrangements in be a PPS lease where the lessee or bailee two circumstances: continues to retain substantially uninterrupted possession of the property with the lessor’s or • where the transaction effectively uses personal bailor’s consent after one year or 90 days, property to secure payment or performance of an depending on the type of goods. obligation (i.e. an ‘in substance’ security interest). Examples may include a finance lease, hire purchase PROFESSIONAL ADVICE RECOMMENDED agreement or ;

• or bailments of personal property that satisfy the This Fact Sheet provides general information in definition of ‘PPS lease’, regardless of whether the regard to the Personal Property Securities Act property involved is being used to secure payment or 2009 and does not constitute legal advice. other obligation. PPS reform may affect you and your business in Registration of a security interest arising from a PPS a number of different ways. Seeking lease provides notice of the lessor’s or bailor’s interest in professional advice in relation to the specific the property while it is in the possession of the lessee or issues affecting your business is recommended. bailee for a prolonged period. This is important because these types of arrangements can allow the lessee or bailee to maintain an outward appearance of ownership.

Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528 A lease of portable buildings for an indefinite term was found to amount to the equivalent of a PPS lease under the New Zealand legislation and the lessor was treated as having a security interest in the buildings. The court found that the lessee was able to grant a further security interest to a in the portable WHAT ISN’T A PPS LEASE? buildings despite not owning them. At the time the lessee went into receivership the lessor had not A PPS lease will not arise where the lease or bailment is registered its security interest, but the bank had. The for a total length of less than one year or 90 days as lessor’s failure to register its security interest meant relevant. Further, a lease or bailment will not be a PPS that the bank’s registered security interest over the lease if the lessor or bailor is not regularly engaged in same property took priority. the business of leasing or bailing goods. In the case of bailments, a PPS lease will not arise if the bailee does EXAMPLES OF A BAILMENT THAT WAS NOT A PPS not provide value, for example by way of payment, in LEASE exchange for possession of the property. A lease or bailment that is part of a ‘pooling Rabobank New Zealand Limited v McAnulty [2011] arrangement’ will also not be a PPS lease. NSCA 212 A pooling arrangement involves a lease/hire A horse was bailed by its owners to a commercial stud arrangement where fungible equipment is passed farm which was paid by the owners to provide between multiple users with or without the owner’s services, such as managing the servicing of mares by consent before being returned to the owner. An example the stallion, the collection of fees on their behalf, and of such an arrangement is the lease and subsequent sub generally providing for the horse’s care. A bank later lease of pallets as part of the transportation of goods registered a security interest over the stud farm’s stored on the pallets. property in exchange for finance. When the stud farm International Examples defaulted, the bank claimed an interest in the horse ahead of the owners because they had failed to The PPS Act was drafted so that it was generally register a security interest arising from the bailment of consistent with the comparable legislation overseas on the horse. which it was modelled. Accordingly, judicial decisions in those jurisdictions offer a guide as to how the PPS Act However, the court found that the bailment, although exceeding one year, did not constitute the New may be interpreted by Australian courts. Zealand equivalent of a PPS lease and the priority rules in the NZ PPS Act did not apply. Rather, it found EXAMPLES OF ARRANGEMENTS THAT WERE PPS that the owners of the horse were not in the business of bailing goods, but were rather in the business of LEASES maintaining and profiting from the stallion. To be in the business of bailing goods, an owner would have to Waller v New Zealand Bloodstock Ltd [2006] 3 NZLR receive, or intend to receive, payment, or some other 629 form of value, with a view to making a from the bailment. A racehorse had been leased by its owner for a term of By contrast, in this case the bailee obtained more than one year. The interest of the lessor was possession of the horse, but did not pay for that deemed to be a security interest under the New Zealand possession; rather, the bailee was paid by the bailor to PPS Act and was therefore registrable. However, the carry out services in relation to the horse. Therefore, it owner had not registered its security interest at the time could not be said that the owner profited, or intended the lessee went into receivership. The court relied on to profit, from the bailment. In deciding that this Graham v Portacom (below) to find that a financier, who scenario was not caught by the NZ PPS Act, the court also commented that it considered the wording of the had a registered security interest over all of the lessee’s Australian PPS Act was clearer in excluding these present and future property including the horse, took arrangements from the definition of a PPS lease. priority over the unregistered security interest of the lessor. It is important to note that this case involved a FURTHER INFORMATION lease to purchase arrangement (i.e. the intention was for the lessee to ultimately own the horse outright) where Visit the ‘Ask the Registrar’ page at www.ppsr.gov.au/, call 1300 007 777 or talk to your business advisor. payment was provided in exchange for the racehorse.

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