Banking Information » Priority documents (Personal Property Securities Act 1999)
Priority documents (Personal Property Securities Act 1999)
Member banks of the Association have agreed a number of standard form Deeds and Letters of Priority that can be used where two or three lenders have competing interests in a debtor's land or personal property.
The Personal Property Securities Act 1999 ("PPSA") sets out rules for determining:
- how to take a security interest over personal property;
- when a security interest is valid and enforceable against the debtor, other secured parties, a receiver or liquidator, and a purchaser of the property; and
- which secured party will have priority to seize and sell, or to receive sale proceeds, when the security needs to be realised.
The documents allow secured parties to:
- change the priority rankings of their security interests (i.e. from first to second, and vice versa); and
- limit each other's priority to agreed maximum priority amounts.
Each of the documents is split into two parts.
The first part is in a Word document format which you can download, type in details specific to the particular transaction, and then arrange to sign with the other parties.
The second part sets out the general terms and conditions that apply to the first part. It must not be changed without consulting the member bank involved in the transaction and is in a secure pdf format. The first part references and incorporates the second part of the document. You can print off the second part, and attach it to the Deed or Letter, or leave the cross reference to where it appears on the Association's website.
The Letters of Priority are less formal than the Deeds, and the Debtor is not required to sign them. You will need to confirm with all the parties whether the Deed or the Letter is to be used for a particular transaction.
Deeds of Priority have also been prepared which regulate the priority of three secured parties with interests in the same property.
These documents have been reviewed and updated with effect from 14 April 2014. An explanation of the changes is available here. The priority forms which previously applied from 1 June 2008 to 13 April 2014 are available here, from 1 January 2008 to 31 May 2008 are available here and prior to 1 January 2008 are available here.
The current forms of the Deeds and Letters of Priority are listed below:
1. NZBA Deed or Letter of Priority (PPSA)
These documents should be used in respect of security over PPSA property, or Collateral, only.
The Collateral regulated could be specific items of property (for example, a specific Rolls Royce), or a particular class of property (for example, all present and after acquired motor vehicles).
The First Secured Party set out in the Deed or Letter takes priority, or retains priority (depending on whether the parties have agreed to change the priority ranking or not), ahead of the Second Secured Party.
This priority is only up to the stated First Secured Party Priority Amount. Once the First Secured Party has following an enforcement of security over the Collateral, recovered up to the First Secured Party Priority Amount, the Second Secured Party will have priority up to the Second Secured Party Priority Amount.
Any change in priority only applies to the Collateral set out in the Deed. If the First Secured Party has a security interest over all present and after acquired property that is not limited to PPSA property, it may be more appropriate to use the documents in section 2.
2. NZBA Deed or Letter of Priority (PPSA & Non-PPSA)
These documents should be used where the secured parties each have security over both property governed by the PPSA and property not governed by the PPSA (e.g. land, ships over 24 metres, fishing quota, etc).
These documents have one First/Second Secured Party Amount (which, together with interest and costs, makes up the priority amount) for both the PPSA property (referred to as Collateral) and non-PPSA property (also called Other Property).
The First Secured Party set out in this document takes priority ahead of the Second Secured Party set out in this document up to the First Secured Party Priority Amount in relation to the Collateral and Other Property set out in the Deed.
Once the First Secured Party has recovered under their security over the Collateral and Other Property up to the First Secured Party Priority Amount, the Second Secured Party will have priority up to the Second Secured Party Priority Amount. If the Three Secured Parties Deed is selected, once the Second Secured Party has recovered under its security over the Collateral and Other Property up to the Second Secured Party Priority Amount, the Third Secured Party will have priority up to the Third Secured Party Priority Amount.
Please note that, if parties wish to provide for separate priority entitlements in respect of Collateral and Other Property (which are not aggregated), separate Letters or Deeds of Priority should be used for each.
3. NZBA Deed of Priority (Land)
These documents regulate priority between land mortgages.
If a second mortgagee of land, and/or third mortgagee of land, wishes to limit the first mortgagee's priority amount to an amount lower than the section 92 amount specified in the first mortgagee's mortgage, this form must be used.
There is no Letter format for this document as any changes to priority in relation to land must be executed by deed.
Please note that if the mortgagees wish to best protect their changed priority positions a priority instrument must be used and registered with LINZ.
Use of the Deeds and Letters
The information above is a general comment on how the Deeds and Letters are intended to operate. No representation is made or warranty given by the NZBA or its member banks as to the suitability of the Deeds or Letters for particular transactions.
Before using the Deeds and Letters independent and specific advice should be obtained from appropriate experts.
It is the responsibility of the users of the Deeds and Letters to ensure that the documents are in acceptable form to them. In particular, it is the responsibility of the users to identify whether any variations to the standard documents have been made by any party and, if so, the appropriateness of those variations.
The NZBA and its member banks will not be liable for any loss arising from acts or omissions relating to the Deeds and/or Letters.