PPS Lease and Bailment Fact Sheet

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PPS Lease and Bailment Fact Sheet Powered By Docstoc
					                                                                Generally, lessors or bailors are the owners of
                                                                the property the subject of the lease or bailment.
                                                                Both lessees and bailees are the persons given
                                                                possession, but not ownership, 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
Personal Property 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 law about security interests in property       property leased or bailed when the arrangement
other than real estate. 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 pledge;
• leases 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 bank 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 profit 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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posted:5/21/2012
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