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All businesses owners and operators need to be aware of the Personal Property Securities Act (PPSA). The New Zealand government enacted the Act in 1999 to consolidate case law regarding personal property into one statute. The PPSA made it easier for businesses to understand how a liquidator would distribute to creditors if they became insolvent. In addition, the New Zealand government enacted the PPSA to ensure the law handled all secured interests in the same manner.  One of the more contentious issues surrounding the PPSA is how it interacts with leases. The main question is whether the Act considers leases to be the property of the person leasing it. The other is whether it is fair game for creditors, even though the title will be with the property owner. This article will explain how the PPSA defines and handles a lease in New Zealand.

What Is the PPSA?

Before the PPSA, a confusing patchwork of case law governed security interests in property. This meant it was hard for business owners to understand what security the law granted over a particular piece of personal property. The PPSA consolidates this and creates a consistent law governing personal property securities. The PPSA defines how you can create a security interest over property. It likewise details which creditor gets priority if the business goes insolvent. To get the best priority over personal property, they should register their security interest on the PPSA register. The register allows anyone to look up who has a security interest over what and helps determine who registered a security interest first if there is a dispute. 

What Is a Security Interest?

A security interest is a right to property owned by another party. They may have recourse if the original party does not perform their original obligation or fails to make payment on the good. Banks will usually have a security interest over the property if they are loaning money to a business. They will usually have a general security arrangement over all the property that a business has. You must register a general security arrangement on the PPSA register and renew it every five years.

Another way to look at it is that the bank can take your personal property if you fail to service your loan.

How Does the PPSA Define a Lease?

Many businesses don’t realise that a security interest can be granted over the property that a business leases. Many businesses may believe this will defeat any security interest claims because they are the legal owner of a specific good. However, in certain circumstances, the legal owner can lose out to someone who has a security interest or general security arrangement over a business. This can be a problem for businesses that are leasing goods to other businesses.

The PPSA defines a lease as a lease term of more than one year or a lease for an indefinite period. For example, suppose you lease goods to a company, and the company goes into liquidation. In that case, the bank can take those goods if they have a general security arrangement over them. However, they can only do this if you haven’t registered a security interest over that lease. Your goods will also be safe if you are not in the regular business of leasing goods. The PPSA also considers a bailment to be a lease.

A lease of chattels, meaning part of the lease of land or property, is not considered a lease under the PPSA. This means that if you are renting a house with a washing machine in it, the landlord is safe from that personal property being taken if you cannot pay your debts. 

Key Takeaways

The PPSA has been revolutionary for the governance of security interests in New Zealand. However, a common issue is whether the PPSA defines a lease as a security interest. The PPSA outlines that a lease for a term of more than one year or a lease for an indefinite term can be considered a security interest. This can create issues for businesses who lease personal property to other businesses as it is irrelevant that they still hold the legal title to that good. 

For legal assistance with the PPSA, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can any type of lease be a security interest under the PPSA?

It can be a security interest as long as it is for more than one year or an indefinite term. 

Can I still create a security interest even if I don’t register it?

Yes, however, you will not have the top priority if there is a dispute between creditors.

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