Australia: Red tape reduction: Federal Government to do away with 90 day lease requirement under PPSA

Today is the Federal Government's first repeal day for 2014.

As part of Tony Abbott's race to cut $1 billion in red tape annually, the Coalition introduced a number of deregulation bills into parliament last week in a move to repeal more than 10,000 counter-productive or redundant regulations and laws, to ease the administrative and financial burden on individuals and organisations.

Today those bills are expected to be passed in the House of Representatives.

One of the many pieces of legislation affected by this initiative is the Personal Property Securities Act 2009 (Cth) (PPSA), with the changes outlined in the Personal Property Securities Amendment (Deregulatory Measures) Bill 2014 (Bill).

What are the changes to the PPSA?

90 day lease requirement

The Bill proposes to amend the PPSA so that leases for a term of 90 days or more for serial numbered goods will no longer be deemed to be PPS leases for the purposes of the PPSA.

As it stands, the PPSA deems leases of more mobile items of personal property (such as motor vehicles, boats and aircrafts – known in the PPSA as 'serial numbered goods') to be PPS leases where the leases are for 90 days or more. These can include renewals, options or lessees holding over with the lessor's consent.

These 'deemed security interests' provide lessors with a key protection against the loss of leased property in the event of a customer's insolvency; should a lessor fail to register its security interest prior to a customer's insolvency, the lessor's status is reduced to that of an unsecured creditor.

This change means equipment hire companies will not need to register leases with a term of less than 12 months, and aligns the PPSA with personal property securities regimes in other common law countries, such as New Zealand and Canada.

Motor vehicles

The Explanatory Memorandum to the Bill also considers proposed amendments to the definition of a 'motor vehicle'. The Bill discusses limiting the definition of a motor vehicle, such that property will only be considered a motor vehicle for the purposes of the PPSA and PPSR if it is:

• capable of travelling at a speed of at least 10km/h, and
• has one or more motors with a total power greater than 200 watts.

Currently under the PPSA, the definition of 'motor vehicle' covers a wide variety of items beyond a car (eg scissor lifts, boom lifts, truck mounted travel towers, excavating vehicles or even stationary cement mixers), and such a broad scope was presumably never the intention of the legislation.

By combining the two parts of the definition (ie speed and power output), fewer items would come within its scope and the application of the 90 day deemed lease provisions would be reduced. However, in light of the proposed repeal of the 90 day lease requirement, the Bill has not taken any steps to amend the definition of a motor vehicle at this stage.

What do the changes mean?

The changes are expected to ease the administrative burden on equipment hire companies.

Given, the potentially high cost of failing to register a security interest, coupled with the complexity involved in determining when a lease should be registered, equipment hire companies have previously been forced to take a cautious approach and make a significant number of registrations. As an average equipment-hire company can enter 400 leases a week, this has imposed an onerous compliance burden on these businesses.

Repealing the '90 day lease requirement' (section 13(1)(e) of the PPSA) would simplify the PPSA as there will only be one deeming provision. This provision would capture leases of a term of more than 12 months or an indefinite term, regardless of the type of goods leased. Accordingly, the need to make a registration against a customer would only need to be considered where the lease is for more than 12 months or an indefinite term.

Practically, equipment hire businesses would then rely on proof of ownership of the goods (ie a lease agreement) rather than registration, to avoid loss of the goods in the event of a customer's insolvency or in cases where the customer tries to sell the goods to a third party. This is currently the position that applies to leases of a term of less than 90 days.

To allow affected stakeholders time to make any small adjustments necessary to take advantage of the change to the PPSA, it is proposed that the commencement of the Bill, if passed, would be delayed for a short period determined in consultation with key stakeholders. The amendments would also be expressed to apply to goods leased on or after commencement of the changes. This would preserve the operation of the law for any interests created under pre-existing leases.

Commentary

The Federal Government's plans to repeal the 90 day lease requirement and revert to what is effectively a one-year lease requirement is likely to save equipment-hire companies across Australia millions of dollars in compliance costs, by removing the need to register short-term arrangements.

However, equipment-hire companies, whether big or small, must remember that registration of leases or bailments of goods for terms of longer than a year remains vital to protect the interests of equipment hire firms.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.