What real estate lenders need to know about the coming amendments to the PPSA (Ontario)
On December 31st, 2015, amendments to the conflict of laws provisions in the Personal Property Security Act (Ontario) (the “PPSA”) which have been on the books since 2006 will become effective. As a real estate lender, these changes will have implications for your security interests in intangible assets, mobile goods, negotiable instruments and investment property.
The new rules will:
- affect the jurisdictions in which you will need to register your personal property security interest and where searches will need to be conducted; and
- put the priority of existing security interests at risk if steps to perfect by registration are not taken before December 31, 2020.
To help put the changes into context, think about the PPSA as a statute that governs two types of personal property relationships. The first are relationships between a creditors and a debtor. The second are relationships between different creditors of the same debtor. The amendments get at the second set of relationships.
The PPSA helps to sort out competing claims by creditors in the same collateral. With some exceptions, making a PPSA registration is a lot like taking a ticket at a deli counter and obtaining a piece of evidence that you hold a spot in line. From a policy perspective, the idea is to provide notice to other creditors, so that everyone can agree on who is in line and what spot everyone has, and lenders can make informed decisions when attributing value to collateral.
The coming amendments deal with the question of where a creditor should have to give notice about a security interest in certain assets of a debtor if the debtor has some connection to a jurisdiction other than Ontario. Under the existing rules, if a registration was made in the jurisdiction of the debtor’s chief executive office, the PPSA told you that you had provided adequate notice to other interested creditors. A secured party will typically ask for representations from the debtor about the factors that determine its chief executive office, but it is ultimately a qualitative test. The new rules aim to impose a clearer bright line test, as to where to register to give adequate notice to other creditors. Creditors are now told to look at the type of entity, and a summary of these new rules is included in the table below.
To ensure that existing registrations and new registrations hold their expected place in line, it is important to understand the transition rules that accompany the legislative changes. Existing registrations from prior to December 31, 2015 continue to hold their spot in line until December 31, 2020. If a secured party takes steps to register in accordance with the new rules during the 5-year transition period, its spot in line is safe.
Like other secured lenders, real estate lenders will need to ensure that existing PPSA registrations which are set to expire after December 31, 2020 are re-registered under the new rules so that they get the benefit of the transition rules. On certain transactions, lenders may also notice that registrations have to be run in multiple jurisdictions to ensure that all registrations affecting the underlying collateral are caught, as searches must be conducted according to both the old rules and the new rules until the end of 2020.
amendments conflict of laws provisions Personal Property Security Act PPSA (Ontario)