The Personal Property Securities Act – what it means for the property sector

In the last twelve months Parliament has passed a number of very important pieces of legislation that have significant effects on the property industry.

The Personal Property Securities Act 2009 (Cth) (PPSA) is the latest piece of legislation.

There has been much discussion of the impact and application of the PPSA in the corporate context. However, there has been little commentary on the effect of the PPSA in the context of real property. As we highlight in this update, PPSA does have an impact in respect on real property.

Purpose of the PPSA

The PPSA is expected to commence in [October 2011]. The PPSA will create a register for all ‘Security Interests’ which is intended to amalgamate the numerous other registers for differing securities in personal property. The PPSA has been drafted to address issues in the domestic economy and finance sector, and to promote competition in Australia. It deals with priorities of competing interests, protection of third parties and attempts to provide clearer rules for the creation, extinguishment and enforcement of security interests in personal property.

Security interest and personal property

A security interest is broadly defined as ‘an interest in personal property provided by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property)’. This means that the PPSA applies to personal property. Personal property is ‘property including a licence other than:

  • land; or

  • a right, entitlement or authority that is:

    • granted by a law of the Commonwealth, a State or a Territory; and

    • declared by that law not to be personal property for the purposes of the PPSA’.

Land is in turn defined to include ‘all estates and interest, whether freehold or chattel, in real property, but does not include fixtures’. Nevertheless, mortgage-backed securities which do not identify particular land are subject to the PPSA. This will facilitate securitisation of mortgage debts.

The PPSA will not apply to interests in fixtures because they have been specifically excluded by s 8(1)(j). On the other hand, harvested trees and extracted minerals will be personal property for the purposes of the PPSA.

Specific inclusions and exclusions

The PPSA provides that the following securities and transactions are security interests if they secure payment or performance of an obligation:

  • a fixed charge;

  • a floating charge;

  • a chattel mortgage;

  • a conditional sale agreement;

  • a hire purchase agreement;

  • a pledge;

  • a trust receipt;

  • a consignment;

  • a lease of tangible property;

  • an assignment;

  • a transfer of title; and

  • a flawed asset arrangement.

Creation of a security interest

A security interest will be enforceable as between the grantor and the secured party when the security interest attaches to the collateral (that is, over the personal property subject to the security). Attachment occurs when the grantor has rights in the collateral and provides value or does an act that causes the security interest to arise, for example by signing a security agreement. But the security interest will not be enforceable against third parties unless some additional requirements are satisfied. The security interest must have attached, and it must be perfected, by the secured party taking possession or control of the personal property or there must be a security agreement that contains an adequate description of the collateral.

A secured party will not obtain the best available protection under the PPSA unless its security interest is perfected. Perfection is necessary to obtain priority and to prevent the collateral vesting in the grantor upon insolvency. Perfection can be obtained by taking possession or control of the collateral in accordance with the tests laid down in the PPSA or by registering the security interest on the PPS Register. There is also a form of temporary perfection available for a short period in certain situations where it is difficult or impracticable to perfect a security interest by registration.

Deemed security interests

Certain transactions are deemed to be security interests for the purposes of the PPSA. There are four different types of deemed security interests:

  • the interest or right of a transferee in a transfer of an account;

  • the interest of a transferee of chattel paper;

  • a PPS lease; and

  • a commercial consignment.

These transactions are taken to be security interests under the PPSA, regardless of whether the transaction secures payment or the performance of an obligation. The requirement to register deemed security interests should provide creditors with greater transparency of the business’ accounts, as well as its goods used in the course of business.

Chattel paper does not include a document of title, a negotiable instrument, an investment instrument, or an intermediated security. All these terms are defined in the PPSA.

Chattel paper is a form of collateral that is separate from the goods to which it relates. It is made up of two items of property:

  • writings that evidence a monetary obligation; and

  • a security interest in, or a lease of, specific goods or specific goods and accessions.

Leases, hire purchase agreements, contracts with reservation of title clauses and chattel mortgages of specific goods are all examples of chattel paper.

PPS leases

A PPS lease is essentially a lease or bailment of goods for a term of more than 90 days in relation to serial numbered goods (such as motor vehicles, aircraft or water craft) or more than one year in relation to other goods.

However, a PPS lease will not include a lease of furniture as part of a furnished apartment.


Land includes more than simply real property. Items classified as assets for capital gains tax purposes, if attached to land, will also be included.

A profit á prendre is related to land and can be protected by lodging a caveat. Hence, it will fall outside of the category of personal property as defined by the PPSA.

Under s 8(1)(f)(ii), the PPSA does not apply to the transfer of a right to payment in connection with an interest in land, where the land is specifically identified. This could exclude mortgage-backed securities if the writing evidencing its creation identified the land secured by the mortgage being transferred, but Regulation 1.5 provides that mortgage-backed securities are not excluded from the PPSA. However, s 8(1)(f)(ii) raises some interesting issues in relation to rental streams from mortgaged real property before default under the mortgage.


Not all licences are covered by the PPSA. Rights, entitlements or authorities that are:

  • granted by a law of the Commonwealth, a State or a Territory; and

  • declared by that law not to be personal property for the purposes of the PPSA,

are excluded from the PPSA.

As the States must refer the legislative power to enact PPSA to the Commonwealth, they are able to define personal property to exclude State statutory rights. This means that the States are able to exclude licences (like gaming, mining and liquor licences) from the operation of the PPSA.

Licences to which the PPSA does apply, may be personal property under the PPSA, but are not a security interest by themselves. Examples include taxi licences, dairy quotas and nursing homes licences.


Fixtures are expressly excluded from the PPSA. The definition of fixtures under s 10 of the PPSA is broader than the common law concept of fixtures (which depends on the degree and object of annexation).

This means that generally fixtures will be dealt with in a sale of land in the same way and will not be affected by the PPSA.


The terminology and concepts associated with the previous notion of fixed and floating charges have been changed by the PPSA. What has until now been referred to as charger, chargee, charged property and a mortgage debenture or charge will become known respectively as a grantor, secured party, collateral, and a General Security Agreement (GSA). A fixed charge will become known as a security interest in non-circulating assets; a floating charge will become known as a security interest in circulating assets. However, it will still be possible to take a security interest over all present and after-acquired property of a company.

The distinction between a fixed charge and a floating charge will no longer be relevant in relation to PPSA property and the PPSA will dispense with the concept of crystallisation.

The parties need to agree on the extent of the grantor’s ability to deal with the assets without the consent of the secured party, that is, how freely the grantor may deal with its assets. They should also agree on:

  • whether third parties can take free of the security interest; and

  • the priority of the charge compared with other security interests under the PPSA.


The extinguishment rules under the PPSA allow a buyer or lessee of personal property to take that property free from a security interest. The rules are quite extensive and deal with a variety of circumstances.

The primary rule is that a buyer or lessee takes personal property, free of an unperfected security interest. As such, it is imperative that a creditor ensures it registers its security interest (or perfects it by another mechanism). If it does not, it will risk losing its security interest in the collateral.

Security interests that have been perfected may also be extinguished and this allows a buyer or lessee to take free of a perfected security interest in other circumstances. For example if:

  • the sale or lease is within the ordinary course of business;

  • the sale or lease is of serial number registered property (such as motor vehicles, watercraft or aircraft) where the secured party has not registered under the PPSA using the serial number; or

  • the sale or lease is of personal property intended to be used predominantly for personal, household or domestic purposes (if less than $5000).

These rules are all subject to their own exceptions. They should be examined carefully to determine whether in the particular circumstances of a sale of land, these provisions will apply to the security interests held over the personal property related to the sale.

Land enforcement

The PPSA allows a secured party with a security interest in relation to both real and personal collateral to deal as if the personal property were land. This means that the State or Territory laws pertaining to land could be relevant in the enforcement provisions of the PPSA.

A secured party will have the same rights and remedies available under a land law of the State or Territory and will be allowed to take one enforcement action against both real and personal property. That is, the secured party may decide whether it wants to enforce its security interest in personal property in the same way as it treats its interests in the land. This option will only be available if the land and personal property secure the same obligation for the secured party.

If the secured party decides to enforce its security under land law, the law of the State or Territory in which the land is located will apply. However, the distribution of proceeds of sale from the realisation of the personal property will be governed by the PPSA.

Discharging of securities

At the moment, there is no prescribed method for discharging a security interest. This may be achieved in several possible ways:

  • the secured party may execute a deed of release, releasing the grantor from the security;

  • the parties may exchange correspondence agreeing that the security has been discharged (this must be in writing and presumably with the consent of all interested parties); or

  • circumstances may arise which prevent the secured party from claiming the benefit of the security interest because of some form of estoppel.

Another mechanism by which parties could discharge a security interest is by requiring the secured party to lodge a Financing Change Statement. A Financing Statement is an instrument filed under s 150 of the PPSA by which a person registers data with an application for registration of a security interest. A Financing Change Statement is an instrument that amends data relating to the security interest on the PPS Register. Lodging this document will allow the register to be amended to show that the property is no longer the subject of the security interest.

Transition period

There is a transition period during which existing securities in respect of personal property (such as company charges) are brought on to the PPSA register. During that transition period, both the ASIC charges register and the PPSA register will have to be checked in the case of commercial property transactions.

Land development

Land development contracts (especially those in the nature of joint venture arrangements pulling various parties together to develop land) involve a myriad of rights and obligations. The PPSA could have an impact on these arrangements. For example, rights in respect of intellectual property brought to the transaction may well be a security interest that will be subject to the PPSA.

The protection of income streams and the performance of obligations under the land development contract (such as by way of a cross charge) will be a security interest regulated by the PPSA.

As a result, careful consideration will need to be given to whether the interests under these land development contracts should be registered under the PPSA.

Commercial property

Acquisitions of commercial built form land often involves the acquisition of personal property that is integral to the operation of that built form. These things include commercial lease arrangements for equipment integrated in the building. This can include computer systems, electronic signs, parking access facilities and security systems. These arrangements can be security interests for the purposes of the PPSA.

Increasingly, the financing arrangements in respect of individual components for that building are complex and becoming more complex. For example, the financing and maintenance arrangements in respect of the elevator services in buildings are inter-related. Depending on the precise nature of those arrangements, they may well be security interests for the purposes of the PPSA, even though the elevators themselves are not covered by PPSA.


There are many types of security interests that will be brought under the operation of the PPSA. As there is a central register, care should be taken by all buyers and sellers in real property transactions (including for the sale of land) to ensure that they are aware of any security interests that may exist with respect to personal property included in the transaction. It will generally be necessary to obtain releases of these security interests on or before settlement. Security interests will need to be removed by the parties involved, by way of several potential mechanisms such as deeds of release or registration of financing change statements.

Secured parties should take care to ensure their interests in personal property are perfected as required under the PPSA (whether by registration or by way of possession or control).

Some securities may be extinguished automatically under the specific rules of the PPSA. These allow the purchaser to take the property free of any security interest in certain circumstances.

A secured party with the same obligation secured by both personal property and land may be able to proceed with one enforcement action in a streamlined manner with cost savings.

Commercial land transactions often involve the acquisition of personal property (such as domain names, trade marks, business names, licences (such as liquor licences) services contracts and so on. Every commercial property transaction is going to have to be examined in the light of the PPSA.

For more information please contact:

Peter Beekink  
(08) 9288 6751  
Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.