Property Leasing: The Importance of Registering Your Collateral

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

If leasing property is a regular part of your business, the requirements of the Personal Property Securities Act of 2009 (Cth) (the Law) should be taken into account, as if applied, a lack of understanding of your obligations under the Law may inadvertently alter the priority of interests between you, the lessee and related third parties.

A property lease 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 in the Personal Property Securities Registry (PPSR). If you do not comply with the Law or do not register your tenancy, you may expose yourself to property problems, especially in circumstances where the lessee goes into administration or liquidation.

Do I have a PPS lease?

The first key question is if your lease is a PPS lease and this depends on the year your lease was signed.

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

  1. the lease is for a term of at least two years; EITHER
  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 terms may exceed two years; EITHER
  3. the lease is for a term of less than two years, or for an indefinite period of time and after the lease is entered into, the lessee (with consent) retains uninterrupted or substantially uninterrupted possession of the property for more than two years.
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For leases entered into before May 20, 2017, the lease will constitute a PPS lease if:

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

Is the PPSA compromised?

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 dedicated to the property leasing business. This is a matter of fact and depends on whether, at the material time (which is the time the lease is entered into), the leasing of property was a proper component of your business.[1]

Leasing Agreements and PPS Registration

If you have a PPS lease, your agreement is considered a security interest that can be registered with the PPSR, and it is especially important that you do so.

If you do not register your security interest in the PPSR, you may lose your assets. According to the Law, the registry perfects the right of guarantee that gives priority and notifies its interests to the public.

In the event you fail to register your PPS lease, which means you are left with an unregistered lease, and the tenant goes into liquidation or administration, the leased property would be left to the liquidators or administrators.

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

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Other additional factors that may influence whether you have a PPS lease include whether you operate business within or outside of Australia and whether the assets are fixed.

key takeaway

If you are regularly involved in the leasing of property, it is imperative that you are very aware of the requirements for registering your interests under the Act or you may expose yourself to significant loss.

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