The building trade will find the Personal Property Securities Act 1999 (PPSA) an interesting piece of legislation to come to grips with. Due to come into in force early next year, it is certain to have an impact on suppliers - and recipients - of building products.

The introduction of such an Act has been mooted for some time and was the subject of a Law Commission report in 1988. Although for a considerable period after that there were no further developments, the PPSA was passed under urgency late last year. It is still not clear when the PPSA will come into force - some pundits are picking early 2001, while others suggest later in the year. There will be a six month 'settle down' period after the Act has come into force so that those affected can adjust to the new regime.

The Act consolidates and revises the New Zealand law dealing with security interests in goods or personal property. Current New Zealand law is a myriad of various statutes regulating different sorts of transactions. The current law relating to security interests is extremely complicated: numerous different legal relationships are created, together with a variety of different requirements for having securities properly registered or notified. The intention of the new Act is to deal with all types of security interest transactions in the same way.

The PPSA introduces some fascinating terms like "collateral", "security interest", "attachment", "perfection", and "purchase money security interests" (or PMSIs), which have their origins in North American and Canadian legislation. PMSIs may replace retention of title (or "romalpa") clauses when goods are supplied and property is retained in goods until they are paid for.

What does this mean for the construction industry? The PPSA will affect those who supply goods, or seek to use someone else's property as security for their obligations. In particular:
a) Standard form and terms of sale should be checked to ensure they are compatible with the new Act.
b) There will be more formal registration requirements to ensure any security is "perfected".

It is not clear how the PPSA in its current form will affect suppliers of goods wanting to exercise their retention of title rights. Under existing law, romalpa clauses generally cease to be effective when goods are affixed to real property. The PPSA does not change this but does lay down specific rules covering goods "affixed to or commingled with" other goods (for example, if the goods are an engine installed in a car). This means that suppliers of hinges, doors, plasterboard, timber, and other building products will be unable to retrieve these from debtors if the materials are installed on site. Although equivalent legislation in North America provides clear rules to protect suppliers in this situation, the PPSA does not.

However, it is possible that some protection might yet be introduced. Building product manufacturers and suppliers should keep up to date with the PPSA's draft specifications and regulations at the Companies Office web site (www.companies.govt.nz).

This is a general summary only and should not be taken as a substitute for specific legal advice.

Russell McVeagh, law firm
Web site: Russell McVeagh