Equipment leases and the PPSA
Assume that XYZ Pty Ltd (XYZ) runs an equipment rental business. XYZ knows that its customer will be leaving the leased equipment on a third party’s site for a period in time. Is this a risk for XYZ?
Yes. This is likely to be a bailment situation. The third party’s interest in the bailment as bailee, could usurp the security interest of XYZ and the interest of the customer if the provisions of s 13 give the bailment the status of a PPS lease under the PPSA. Section 46 is also relevant.
And if the bailment is a PPS lease but the customer fails to register its own security interest on the PPSR, then the third party’s own financier may be able to assert a greater right to XYZ’s equipment than the customer and also than XYZ itself.
What can XYZ do? XYZ can mitigate its risk by expressly requiring its customer to register back-to-back security interests whenever a PPSA security interest may arise. If it fails to do so and the equipment is lost to the third party’s financier, then XYZ may have an action against the customer for breach of contract. Commercial realities may dictate that further or other securities should also be put in place.
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