What is a PPS lease?

The definition

Under section 13 of the Personal Property Securities Act 2009, a PPS lease is a lease or bailment of goods for a term of more than two years, or for an indefinite term, by a lessor who is regularly engaged in the business of leasing goods. A lease for up to two years that is renewed or extended beyond two years becomes a PPS lease at that point.

The threshold was one year when the Act started in 2012 and was raised to two years in 2017. Short fixed-term hires are outside it. Open-ended agreements are inside it from day one.

Why it matters

A PPS lease is a deemed security interest. You still own the goods, but the Act treats the hirer as a grantor and you as a secured party, and your interest only survives the hirer's insolvency if it is registered on the PPSR. An unregistered interest vests in the hirer under section 267, which means the administrator or liquidator sells your equipment for the benefit of the hirer's creditors.

It also matters against the hirer's bank. A bank with an all-assets charge over the hirer can claim goods in the hirer's possession. A registered PPS lease is a purchase money security interest and ranks ahead of the bank's charge over those goods; an unregistered one does not.

Two cases that settled it

• Forge Group Power v General Electric (2016): GE hired four turbines to Forge under a two-year rental and never registered. When Forge collapsed, the court held the rental was a PPS lease, GE's interest vested in Forge, and GE lost turbines worth tens of millions of dollars to Forge's secured creditor.
• Maiden Civil v Queensland Excavation Services (2013): QES hired three Caterpillar machines to Maiden Civil without registering. Maiden's financier had a registered all-assets charge. The court gave the machines to the financier, not the owner.

Who this catches

• Coffee machine, water cooler and POS terminal rentals with no end date
• Fridge, freezer and cool-room rentals to cafés and restaurants
• Copier, printer and IT equipment rentals
• Forklift, scissor-lift and plant hire on open-ended terms
• Portable buildings, site sheds and containers on long hire
• Gym and fitness equipment leased to studios
• Any lease that started under two years and rolled past it

What to do about it

1. Check your hire agreement: does it say the agreement is a PPS lease, grant a security interest, and let you register? If not, it needs a clause.
2. Register each hire on the PPSR against the hirer: by VIN or chassis for vehicles and plant, by description for everything else, flagged as a PMSI.
3. Do it within 15 business days of delivery for priority, and within 20 business days of signing if the hirer is a company (section 588FL of the Corporations Act).
4. Set a reminder before the registration expires. A lapsed registration has to start again from the back of the queue.