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More ways to protect your business with security interests

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The recent case of court case of AWE Perth Pty Ltd v Clough Projects Australia Pty Ltd shows that there are more ways to protect your business when entering into a construction contract.

Key Points:

  • Security interests are important to protect your rights under a contract 
  • Security interests can be over commercial property or intangible property such as a lease of equipment or retention money.
  • But a recent court case shows that “step in rights” can also be a security interest  
What is a security interest?

The Personal Property Securities Register (PPSR) is an electronic register of security interests. Security interests secure payment or performance of an obligation in a contract. 

For example, if you provide equipment or machinery to contractors in the construction industry, you probably do that through a hire purchase arrangement or a lease.

Under hire purchase or lease, you hand over possession to the contractor but keep ownership and have the right to take the equipment back if the contractor stops paying.

This is because leasing equipment is a type of security interest.

Step in rights are also a security interest

AWE Perth Pty Ltd v Clough Projects Australia Pty Ltd shows us that “step in rights” are also a security interest.
What are step in rights?

Step-in rights allow one party to ‘step in’ to the shoes of another party to complete their work under a contract. 

This can happen when the party is unable to perform their end of the agreement, such as if the subcontractor is in breach of the contract.

It means you can ‘step in’ and operate the subcontractor’s equipment until works under the Contract are completed. 

This is important if you (1) have valuable equipment (2) need your subcontractor’s valuable equipment to complete works.

AWE Perth Pty Ltd v Clough Projects Australia shows that security interests can be registered over a broad range of clauses in your contract. 

That means there are more ways to protect each parties’ interests in a construction contract.

Contact us about registering on the PPSR! Also register your interest in retention money!

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