How the PPSR protects buyers and lessees

When you buy personal property, you should do a search on the PPSR to see if there are any security interests registered against it. Not doing so puts you at risk of the property being repossessed. For example, if you buy a boat that the seller owes money on, the lender could repossess the boat if the seller stops repaying the loan.

However, there are some situations where even if you do buy or lease property with a security interest against it, PPS law will protect you by allowing you to take the property free of the security interest. This means the security interest holder won't be able to enforce their interest and can't repossess the property from you.

Depending on the type of property you are buying or leasing, the rules are different.

You will generally take property free of a security interest if:

• someone hasn't registered their security interest on the PPSR (unless they have perfected it some other way) or
• you buy or lease property from a seller or lessor that usually sells or leases that kind of property as part of their ordinary course of business. This could include, for example, buying goods from a retailer.

There are some exceptions to this rule including where the buyer or lessees:

• was part of the transaction that created the security interest
• bought or leased the goods as inventory or
• knew about the security interest.

Types of personal property that have a serial number include:

• cars and other motor vehicles
• watercraft
• aircraft
• intellectual property.

Motor vehicles

When you do a search and it's clear

You'll generally take the vehicle free of any claimed security interests if, you do a PPSR search:

1. against the correct serial number
2. on the actual day or day before the sale or lease goes through
3. the search shows no security interest registered against that serial number.

Examples of when you could potentially be protected by this include if the person claiming the security interest registered it against:

• the wrong vehicle serial number or
• the details of the person who gave them the interest

There are some exceptions to this rule including where the:

• the person selling or leasing you the car is listed as the secured party in the registration (which can often occur if the seller of the car is also providing you with finance)
• buyer or lessees:
  • bought or leased the vehicle as inventory or
  • knew about the security interest.

When you buy from a dealer

If you buy or lease a car from a motor vehicle dealer, you’ll generally take the vehicle free of any security interests.

There are some exceptions to this rule including where the:

• motor vehicle dealer does not have a license
• the person selling or leasing you the car is listed as the secured party in the registration (which can often occur if the seller of the car is also providing you with finance)
• buyer or lessees:
  • bought or leased the vehicle as inventory or
  • knew about the security interest.

When you buy from a private seller

If you buy or lease a vehicle from a private seller and don't do a PPSR search, you will not be protected. Therefore any valid security interest registered against the vehicle when you bought it could still be enforceable meaning there's a risk it could be repossessed from you.

If you buy or lease a vehicle from a private seller and do a search and it's clear, you may be protected. See above for more information.

Other serial numbered property

The rules here are the same as those that apply for motor vehicles except that you need to have done your search immediately before you buy or lease the property. See motor vehicles above for more information.

To be ‘personal, domestic or household property’, the item must be:

• priced at $5,000 or less, and
• for personal, domestic or household use – such as a watch for your partner’s birthday or a sofa for your living room.

Normally when you buy or lease things like this you’ll automatically get them free from security interests.

You won’t get this protection if:

• the item can or should be registered by its serial number (such as a car or boat)
• you know there’s a security interest against it
• you buy or lease it knowing (or when you should have known) its market value was more than $5,000.

There are rules under PPS law that allow you to take certain financial property free of security interests in specific circumstances (such as currency, investment instruments and intermeditated securities). For more information about how this might apply to your situation, you should seek advice from a professional such as a lawyer.