Tacking, the PPSA, and lender priority explained

Tacking allows a lender to attach future advances to an existing security interest and maintain priority over subsequent secured lenders, notwithstanding that they have notice of subsequent security. These future advances (e.g. as a result of facility extensions) attach or ‘tack’ to the existing security.

Traditionally, this was fraught with risk due to the rule in Hopkinson v Rolt (1861) 9 HL Cas 514; 11 ER 829, which held that once a lender had actual notice of a subsequent security, any further advances would lose priority. This rule was further complicated by Clayton’s Case, which could reduce the priority amount based on repayments made after notice.

In Mercantile Credits Ltd v Australia & New Zealand Banking Group Pty Ltd (1988) 48 SASR 407, the Court gave the following helpful explanation of the position at general law:

“if a mortgagee under a mortgage security further advances, makes a further advance without notice of the subsequent mortgage, his security for the total indebtedness will prevail over the subsequent mortgage. This is described as “tacking”, but the right to tack further advances, made after the subsequent mortgage, on to the security depends under the general law on absence of notice. If the prior mortgagee has notice of the subsequent mortgage, his priority is limited to the amount owing under the mortgage at the date of receipt of such notice: Hopkinson v Rolt”.

In other words, a prior secured lender is unable to rely on its existing security and the doctrine of “tacking” if they know of a subsequent security interest before any such advance.

The PPSA has transformed the landscape for personal property securities. In particular, it has re-emphasised the importance of the express agreement between the lender and its customer, as evidenced by the relevant security agreement.

While the doctrine of “tacking” is not expressly referred to in the PPSA, section 18(4) of the PPSA provides that lenders can maintain priority for “future advances” if the security agreement explicitly provides for them. This statutory protection overrides the common law rule, offering lenders a more predictable and enforceable framework.

Further, and as noted by the Victorian Court of Appeal in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (2014) 49 VR 86; [2014] VSCA 326 at [117], section 18 “reflects the basic principle of freedom of contract: security agreements are effective according to their terms”.

‘Future advance’ is defined at s 10 of the PPSA in the following terms:

(a) an advance secured by a security interest (whether or not made pursuant to an obligation), if the advance is made after the security agreement was made; or

(b) expenses in relation to the enforcement of a security interest that are secured by the security interest.

In other words, under the PPSA, an existing security interest can encompass an advance made after the security agreement has arisen and regardless of whether or not the lender has notice of a subsequent security interest.

Importantly, a General Security Agreement (GSA) (which creates a security interest over all present and after-acquired personal property) should be drafted to expressly allow for future advances from the lender to be secured pursuant to that security interest. Further, lenders should also take care to ensure that documentation concerning subsequent advances (e.g. facility amendments and additional security agreements) is not inconsistent with and does not compromise the right to rely on a prior security interest in respect of future advances.

While the PPSA governs personal property, real property securities remain subject to common law unless modified by statute. In these cases, the Hopkinson v Rolt rule still applies, subject to some exceptions (such as circumstances where a lender is bound to make further advances after the date of the second mortgage, or where the further advances increase the value of the mortgaged property – see Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293). Lenders must be cautious when making further advances after receiving notice of a competing interest.

To maximise protection and priority, lenders should ensure that:

• Use GSAs strategically: GSAs cover all relevant personal property and explicitly contemplate future advances.
• Consistency of documentation: All facility and security documentation is consistent such that the right provided by s 18(4) of the PPSA is not compromised.
• Priority: Where possible, they enter into priority arrangements between lenders to make it clear which securities take priority in respect of which secured moneys.
• Register early: PPSA registration occurs as soon as the GSA is signed—ideally before any funds are advanced.
• PMSI exception: They are conscious of the priority of PMSIs (purchase money security interests).
• Monitor competing interests: They stay informed of other financiers and their registered securities.

The recognition of the substantive effect of “tacking” by the PPSA offers lenders powerful tools to secure future advances, but only when used with precision. By combining robust documentation, timely registration, and strategic oversight, lenders can confidently navigate priority disputes and enhance their security position.

For tailored advice on tacking, GSAs, or PPSA compliance, please refer to the following key contacts at Lander & Rogers.