Equipment rental, including lease, hire and bailment2019-01-27T03:15:38+00:00

Equipment rental including lease, hire and bailment

If your business rents, hires or leases equipment to your customers you must consider compliance with the PPSA or you could lose your equipment on the insolvency of your customer.

There have been a number of court cases proving this issue – if your lease or hire of equipment meets the definition of a PPS Lease you will lose any equipment in the possession of an insolvent customer.

So what’s a PPS Lease?  From May 2017 a PPS Lease arises when:

  • The duration of hire is for more than 2 years; or
  • The duration of hire is less than 2 years but can be renewed for further terms where the total of all terms might exceed 2 years; or
  • The duration of hire is less than 2 years but extends past 2 years (but only when it actually passes 2 years).

You may also be exposed where you hire your equipment to someone who will on-hire or cross-hire it as part of their ordinary business.

If any of the above applies you really must protect yourself by compliance with the PPSA – don’t worry it’s cheap and easy to do (once you understand it).

An example is scary:

  • ABC Hire rents a forklift for 2 years to its client 123
  • 6 months later 123 collapses
  • The appointed Voluntary Administrator takes possession of the $65,000 forklift and keeps it because ABC Hire had not complied with the PPSA
  • To make matters worse ABC had financed the forklift and still owes $50,000 to Big Bank
  • Under current interpretation of the PPSA, Big Bank’s security over the forklift does not help and ABC now finds itself without a forklift and still owing $50k.

 

To help you assess whether you have an exposure to the PPSA the following questions should be considered.  A ‘Yes’ response indicates the PPSA is likely to apply.

If there’s any uncertainty we recommend compliance, the very low cost of registration and the high value of equipment at risk, supports a conservative approach.

In the following questions we use the period of 18 months as there remains some uncertainty as to the correct time for registration.  Current thinking is the registration should be performed at month 18. A conservative approach is the best approach.

Questions
  • Have you ever hired equipment for a term of more than 18 months?
  • Are you ever likely to hire equipment for a specific term of more than 18 months?
  • Do you ever enter a hire term for less than 18 months that may be rolled for more than 18 months?
  • Have you ever had an indefinite term hire, continue for more than 18 months?
  • Do you hire equipment to customers who are likely to on-hire or cross-hire the equipment to their customers as part of their usual business?
  • Do you ever allow ‘rent to buy’ arrangements?
  • Does your customer ever have the option to acquire their equipment?

 

If you’d like further information contact PPSAdvisory by clicking here .