Building & Construction: How the PPS will affect this industry
As part of our ongoing series, this week we consider how the new Personal Property Securities Act (PPSA) will impact the building and construction industry after it is introduced in May 2011. The legislation overhauls current laws on secured finance and will change the way in which securities are taken and enforced over most forms of property other than land. A security interest is one that secures payment or performance of an obligation.
What will change under the new legislation?
Under the PPSA, a single national online PPS Register will be established. The legislation will establish uniform rules for creating valid and enforceable security interests and governing priority between competing interests. The new system will require a secured party to register a security interest in collateral within a prescribed timeframe. A failure to register could lead to a loss of priority against other secured parties and potentially the loss of the entire security interest should the grantor become insolvent.
Areas of impact for the building and construction industry
Underpinning most procurement and supply contracts is the principle of retention of title where ownership of goods does not pass to the purchaser until the full price has been paid. When the PPSA takes affect, retention of title clauses will need to be registered to be legally protected as the principle of retention of title will no longer exist.
The legislation will impact, for example, contracts that involve the leasing or right to use and dispose of equipment. It will be critical to register the security interest (for example the money owing under a lease of equipment) in the requisite time. If the builder becomes insolvent, and the supplier has not registered the security interest in the equipment, they may be unable to recover or exercise rights over the equipment.
Another item to consider is where a construction project entails temporary works (e.g. scaffolding) which remain on a building site. The temporary works never actually form part of the construction project and the title to the scaffolding never actually passes to the builder. Traditionally, building and construction contracts may not expressly deal with temporary works however under the PPSA, temporary works will be considered a security interest and therefore will need to be registered.
What you need to do
MST recommends that you:
- identify what interests in goods or services can be registered as a security interest either by your business or that you may be granting to a supplier
- review the terms of Retention of Title agreements as they will need to be amended to reflect the new legislative regime
- consider what systems and processes you will need to establish to effectively manage registration of security interests in a timely manner.
Author: Susan Reece Jones