An updated version of these documents is available here
Member banks of the Association have agreed a number of standard form Deeds and Letters of Subordination and Priority that can be used where two, or three, lenders have competing interests in the one 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;
- Which secured party will have priority to seize and sell, or to receive sale proceeds, when the security needs to be realised.
These new documents reflect the changes bought about by the Property Law Act 2007 including changes to the PPSA and will replace the numerous priority forms currently used in the market place where one of the secured parties is a bank. The priority forms which applied between 1 January 2008 and 31 May 2008 are available in section 5. Those prior to 1 January 2008 are available in section 6.
The documents allow secured parties to:
- Subordinate their security interests (i.e. from first to second, and vice versa); and
- Limit each other’s priority to a respective maximum priority amounts for fluctuating advances.
Please note that the Deed of Priority of Mortgages only regulates the priority of the secured parties, it does not allow subordination. If a second mortgagee wishes to swap places with a first registered mortgagee a priority instrument must be obtained and registered with LINZ.
Each of the documents is split into two parts.
The first part is in a Word document format which you can download, type in the details of the particular transaction, and then arrange to sign with the other parties.
The second part sets out the 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 Subordination and 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 Letter is to be used for a particular transaction.
Deeds of Subordination and Priority have also been prepared which regulate the priority of three secured parties with interests in the same property.
The Deeds and Letters of Subordination are listed below:
1. NZBA Collateral Deed or Letter – 01 June 2008
This document is used for 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 also agreed to subordinate), 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 enforced their security over the Collateral up to the First Secured Party Priority Amount, the Second Secured Party will have priority up to the Second Secured Party Priority Amount.
Any subordination or priority is only in relation 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 Deed 2.
2. NZBA Combined Deed or Letter – 01 June 2008
This document is used where secured parties each have security over property governed by the PPSA, and property not governed by the PPSA (e.g. land, ships over 24 metres, fishing quota, etc).
This document is different to the Combined Deed discussed at 3 below because it:
- Has one, combined, First Secured Party Amount for the PPSA property and non-PPSA property (also called Other Property); and
- Contains an additional clause which governs the priorities between the parties if there is a third (or fourth) secured party which is not a party to the priority arrangements.
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 enforced their security over the Collateral 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 enforced its security over the Collateral up to the Second Secured Party Priority Amount, the Third Secured Party will have priority up to the Third Secured Party Priority Amount.
Other security agreements, including mortgages of land, can be included in this document, but will be regulated by the Secured Party Amounts. For example, if the same land is mortgaged to both secured parties and the mortgages are recorded on the Deed or Letter, then the First Secured Party Priority Amount will also regulate the land. For the land to have a separate priority amount to the PPSA property document 3 below must be used, or a separate Land Deed (document 4) completed.
3. NZBA Combined Deed or Letter – One Secured Amount comprising two parts – 01 June 2008
This document is used where secured parties have security over property governed by the PPSA and property not governed by the PPSA.
The difference between Document 2 and this document is that the PPSA property and Other Property each have separate First Secured Party Amounts. This allows the secured parties to select different priority amounts for the PPSA property, and Other Property.
4. NZBA Land Deed – 01-06-2008
This document regulates 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.
Please note, if the mortgagees wish to subordinate their 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. 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.