Personal Properties Security Register

Financial institutions are familiar with the idea of registering ‘security interests’ over loans or mortgages — which flags that the asset involved (such as property or a vehicle) has a payment obligation attached. But the Personal Properties Securities Register, that came into effect on January 30, 2012, extends the need to register interests to other industries, including the construction sector.

Although the requirement does not apply to land or buildings, it fundamentally changes the law and ongoing practices that businesses will have to adopt in relation to ‘interests’ in most other kinds of assets. In particular for the building industry, this will affect how construction businesses need to deal with their assets — which may include tools, machinery, equipment and building materials — to ensure protection of ownership and rights to payment for building and contracting arrangements.

Under the new regulations, a security interest also needs to be registered for goods hired or leased, as well as materials consigned or supplied. So any time valuable equipment, for example, is left on or supplied to a building site before payment is received, a risk will arise that title or a right to payment for these items can be lost unless interests are registered.

A real case illustrates the danger. A hire company leased a number of ‘port-a-loo’ units to a construction company. At the same time, the building business had taken out a secured loan from a financial institution, which consequently registered its security interest over the construction company’s assets. The port-a-loo business did not consider registering its interest in the leased port-a-loos as it seemed obvious that it was the legal owner of them.

When the construction firm became insolvent, the financial institution had the only registered interest in the port- a-loos — even though the construction firm had only hired the units and not bought them. Hence the port-a-loo hire company was not entitled to recover their own assets, and the units were instead sold off by the construction company’s receivers.

Other examples of everyday construction needs that may come under the Personal Properties Securities Register regime include:

• cranes, forklifts, scaffolding or fencing supplied on hire to a building site
• building materials, equipment and other items (such as pre-fabricated frames, bricks, formwork, tiles, appliances) bought by the builder and supplied to the site before payment is received from the supplier
• tools, electrical or plumbing materials stored by contractors or sub-contractors in a building site shed.