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A Security Deed or Security Agreement is a document which a lender and borrower may sign, giving the lender the right to claim the borrower's assets if the borrower fails to make payments when due. Just like how a mortgage gives a lender the right to sell a borrower's house if the borrower fails to pay their loan, a Security Deed gives a lender the right to seize or sell the borrower's personal property (such as a vehicle, equipment, machinery or other similar property) if the borrower fails to pay their loan. A Security Deed is used for personal property but not for real estate.
A Security Deed is not a Loan Agreement and does not deal with the actual lending of money. Instead, it sits alongside the loan agreement, "securing" the loan by giving the lender some avenues for recovering their money if the borrower defaults on the loan.
It is common for a Security Deed to be used by the parties to secure their rights and obligations under different kinds of contracts such as Loan Agreements, Service Agreements, Freelance Agreements, Contracts for Sale of Goods, Vehicle Sale Agreements, Business Sale Agreements and other similar agreements.
In this document, the party granting the security interest is called the "grantor" and the party whose interest is being secured is called the "secured party". For example, if this document is being used with a loan agreement, the "lender" under the loan agreement would be the "secured party" under this Security Deed, and the "borrower" under the loan agreement would be the "grantor" under this Security Deed.
How to use this document
Fill out all of the relevant details about the parties and the property that is being secured. Be careful to ensure that the property is accurately described and any serial numbers or registration numbers are included, for ease of identification.
The document contains some complex legal terms, so the parties should take their time to review the document, ensure that they understand it, and ensure that it accurately represents their situation. If the parties make errors in the document or provide incomplete information, it is possible that the Security Deed may not provide them with the protection that they think it does. Therefore, if in doubt, seek legal advice.
When describing the collateral (i.e. the property which is secured by this Deed) it is important that it is described very clearly, including any applicable registration numbers, serial numbers or other identifying characteristics. If this is not done, then the secured party may later find that there is confusion about what collateral is actually covered by the Deed, so the Deed may not actually give them the protection they think it does. If in doubt, seek legal advice before signing the Deed.
There are certain formal requirements that need to be met in order for a Deed to be validly signed. This Deed will need to be signed in accordance with those formal requirements, or it may not be legally binding. For example, for an individual to validly sign a Deed, the signature clause should read "Signed Sealed and Delivered" and they should sign it before an independent adult witness, who also provides their full name and signature. The rules regarding the signing of Deeds by companies are set out in the Corporations Act 2001, and generally require the Deed to be signed by two directors, or by a director and the secretary or in the event that the company has a sole director who is also the secretary, by that person.
Once the parties are happy with the document, they may sign it and both keep a copy.
Registering a security interest on the Personal Property Securities Register ("PPSR")
Most secured parties choose to register their interest on the PPSR. This is an important step that provides more protection for the secured party and helps to notify third parties that the secured party has an interest in the secured property. If the grantor becomes insolvent, then an interest which is registered on the PPSR will have priority over unregistered interests, as well as interests that are registered on the PPSR at a later date.
Furthermore, if the grantor tries to sell the secured property, then potential buyers may search the PPSR and may refuse to buy the property while it is subject to a registered security interest. Further information is available from the website of the PPSR or the parties may seek legal advice.
This Deed is subject to the broad principles of contract law.
Security interests generally are governed by the Personal Property Securities Act 2009 (Cth).
If this Deed is being used in connection with consumer credit, then the National Credit Code in schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) may apply.
If either of the parties are companies, then the Corporations Act 2001 (Cth) may also apply.
If unsure about any matters relating to this document, seek legal advice.
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