Urbis Think Tank
Personal Property Securities Act will impact on property transactions
In the new PPS Act, ‘Personal Property’ is defined extremely widely and includes any property other than interests in land including goods of all kinds; crops and livestock; minerals; intellectual property; investment entitlements and instruments. The new laws are complex, but may affect property businesses in several ways.
Settlement process for commercial transactions will change especially where the security is a mixture of land & other assets.
Consider the example of the purchase of a business which includes a freehold interest in the building from which it is operated. A lender would seek security over the land interest as well as the business assets. The current practice involves a mortgage over the land interests together with a fixed and floating charge over the business assets. From 31 October, under PPS, this will change. There will be a mortgage over land and fixtures, and a security interest in the business assets registered on the PPSR.
Next, consider a high rise residential apartment development with recourse limited only to the project assets. Security will be structured and enforced differently under the new PPS regime, as shown in the following table.
Election to apply land law may require additional valuations.
Where land assets and non land assets are connected to each other, the PPS Act includes a new approach of allowing the enforcing party to elect, in effect, to combine those other assets with the land for the purpose of enforcement.
The right to elect only applies if it is the same obligation that is secured by the land and by the personal property, and only the party with the highest priority over the personal property may exercise the right
Where the proceeds of sale are not separated between the land and the personal property then the apportionment should be done by reference to the market value of the personal property as a proportion of the total market value of the combined package at the time of sale.
Where the personal property is closely connected to the land, its stand alone value might be quite different from its value in situ, or its contribution to the overall value of the whole. In such a situation, you may need to obtain separate valuations for this purpose – after the asset has been sold.
Broad implications to impact on holding structures
These changes are far reaching, and will certainly require careful consideration of holding structures. The new register will vastly simplify the security registration process and a further key argument for the changes is that individuals and entities should be able to use more of their property in raising capital. However, as with any change of this scale, there will be much to consider.
Importantly, the Registrar of Personal Property Securities, David Bergman, emphasises that there are two main reasons to register a security interest: to gain priority and for insolvency protection. As a security holder, they are certainly two very good reasons to make sure you tick all the boxes.
For further information access the PPSR home page.
This Bulletin contains general information and does not constitute legal advice. You should seek legal or other professional advice to consider the application of this information to your individual circumstances.