Understanding a Deed of Priority: Essential Guide for Australian Businesses

When you’re growing your business or seeking finance, it’s common to have more than one lender or financier involved. That’s great for funding growth – but it also raises a practical question: if things go wrong, who gets paid first?

A deed of priority is the tool lenders and borrowers use to answer that question in advance. It sets clear ground rules between lenders about the order of repayment and what each party can (and can’t) do if there’s a default.

In this guide, we’ll cover what a deed of priority is, when you might need one, how priority actually works in Australia (under mortgage and PPSA frameworks), the key terms to include, and a step-by-step process to put one in place without unnecessary delays. We’ll also highlight related documents that typically sit alongside a deed of priority so your overall finance structure is aligned and enforceable.

What Is a Deed of Priority (and When Do You Need One)?

A deed of priority (sometimes called a priority deed or deed of postponement) is a legal agreement between two or more secured parties who have, or will have, security over the same assets of a borrower. Its core purpose is to set the order of repayment (priority) and explain each lender’s rights if the borrower defaults.

Think of it like a pre-agreed playbook for lenders. If the borrower’s assets need to be sold or enforcement action is on the table, the deed of priority decides which lender stands first in line and the process to follow.

You’ll typically see a deed of priority when:

• There are multiple mortgages over the same property (for example, a first-ranking bank mortgage and a second-ranking private lender mortgage).
• Business finance is secured over the same personal property (such as equipment, receivables or inventory) by different lenders.
• Development or acquisition funding involves a senior lender plus mezzanine or junior debt.
• Supplier finance, equipment leasing or investor loans are secured over assets already subject to another lender’s security.

In short, any time more than one lender takes security over the same assets, a deed of priority helps avoid uncertainty, stand-offs and expensive disputes.

It’s also useful for clarifying process. For example, it can require junior financiers to stand still for a period (or follow a notice process) before taking enforcement action, so recoveries are coordinated rather than chaotic.

How Priority Actually Works in Australia (Mortgages and the PPSA)

Priority can arise under two broad systems in Australia – land titles for real property, and the Personal Property Securities Act 2009 (Cth) (PPSA) for personal property (assets other than land).

Mortgages Over Real Property

• Priority is generally determined by the order of registration on the land title. The first mortgagee usually ranks first; the second mortgagee ranks behind them, and so on.
• Lenders can agree to change that order via a deed of priority (often called a deed of postponement in the land context). In many states and territories, a priority arrangement can also be recorded on the title so the register reflects the agreed order.

Security Over Personal Property (The PPSA)

• Under the PPSA, priority between security interests over personal property usually depends on “perfection” and time – for example, earlier perfected registrations tend to rank ahead of later ones.
• Certain security interests (like a properly perfected purchase money security interest, or PMSI) can jump the queue for specific collateral types.
• A deed of priority (sometimes called an intercreditor or subordination agreement in PPSA contexts) can alter the priority position as between the parties to that deed. However, the PPSR record itself does not “reflect” your deed. Your relative position against third parties remains governed by PPSA rules and the timing/validity of each registration.

If your deal involves personal property, make sure the security interest is properly registered and perfected – that’s separate from, and in addition to, agreeing priority in a deed. For background on registering security interests, see our overview of the PPSR.

Key Terms To Cover In Your Deed

Every deal is different, but the following terms commonly appear in a deed of priority. Getting these right up front will save headaches later.

1) Ranking and Permitted Debt

• Clearly state who is first-ranking, second-ranking, and so on.
• Define “Permitted Debt” or “Permitted Security” so junior lenders know what the borrower can take on without breaching the deed.

2) Standstill and Enforcement Protocols

• Set a standstill period for junior financiers (for example, junior parties wait a specified time after an event of default before enforcing, unless the senior party consents).
• Outline notice obligations (who tells whom, and when) if default occurs or enforcement is contemplated.
• Explain who controls enforcement strategy and the appointment of any external controller or receiver.

3) Application of Proceeds

• State how sale proceeds, insurance recoveries and other amounts are to be distributed among the lenders.
• Clarify “waterfall” mechanics (costs and enforcement expenses generally come off the top, then senior debt, then junior debt).

4) Payment Blockers and Turnover

• Deal with when junior lenders can receive interest or principal payments (often restricted unless the senior lender is not in default and is being paid in full).
• Include “turnover” provisions requiring a junior lender to hand over any amounts it receives in breach of the deed so the agreed priority is preserved.

5) Variations, Accessions and Transfers

• Set out when the parties can vary loan terms without affecting priority (for example, allowing limited variations or caps on increased facilities).
• Provide a mechanism for new secured parties to accede to the deed if further financiers come on board.
• Address any assignments or novations of the secured obligations so the deed keeps working even if debt is sold or restructured. Where a contract transfer is needed, a Deed of Novation or Deed of Assignment may be relevant.

6) Amendments and Dispute Resolution

• Explain how the deed can be amended (for example, unanimous consent vs a majority consent for certain changes).
• Include a practical dispute resolution pathway so disagreements don’t stall enforcement when time is critical.

7) Execution Formalities

• Because this is a deed, make sure it’s executed correctly by all parties. If a company is signing, consider executing in line with section 127 of the Corporations Act to streamline enforceability and counterpart issues.
• For context, here’s more on what a deed is under Australian law.

Step-By-Step: Putting A Deed of Priority In Place

Coordinating multiple lenders can feel complex, but breaking it into steps makes the process manageable. Here’s a practical roadmap.

Step 1: Map the Capital Structure and Collateral

List every lender, facility and security interest, including mortgages over land and any personal property security interests (like a General Security Agreement over all present and after-acquired property).

Step 2: Confirm Registrations and Perfection

Check land title records for mortgage order and ensure all PPSR registrations are accurate and perfected. The deed itself won’t update the PPSR; if a registration needs to be added or corrected, arrange it directly (for example, by engaging us to register a security interest).

Step 3: Agree the Commercial Priority Position

Senior, mezzanine and junior financiers should confirm ranking, enforcement control and payment waterfalls. Align these with facility terms so the deed and the loan documents don’t conflict.

Step 4: Draft the Deed of Priority

Capture the agreed ranking, standstill periods, notice processes, permitted debt/security and the application of proceeds. Include clear turnover and amendment provisions, and a process for new financiers to accede later.

Step 5: Execute the Deed Properly

Arrange execution by all relevant parties as a deed. If required for real property, consider recording the priority arrangement on the land title so the registry reflects the agreed order.

Step 6: Update Deal Records and Closing Deliverables

Finalise any required PPSR filings or corrections, gather final facility agreements and securities, and ensure your internal records (and any conditions precedent to funding) are satisfied.

Common Pitfalls To Avoid

• Assuming the deed “updates” PPSR priority – it doesn’t. Your PPSR position against third parties is still set by PPSA rules and proper registrations.
• Misaligned documents – if the deed says one thing but the loan or security agreement says another, you risk disputes during enforcement.
• Vague collateral descriptions – be clear about which assets are covered to avoid overlap or gaps.
• Missing parties – leave a secured party out and you can undermine the whole arrangement.
• Skipping standstill mechanics – coordinated enforcement usually preserves value; simultaneous action can destroy it.

Related Documents To Protect Your Position

A deed of priority is only one part of a coherent finance and security package. Depending on your deal, you may also need:

• Loan Agreements and Facility Documents: The commercial terms of each debt instrument should align with the deed’s priority mechanics.
• General Security Agreement (GSA): A core security document over personal property – see our General Security Agreement service for context.
• Mortgages Over Land: For real property, registered mortgages create and evidence priority on title (subject to any recorded postponements).
• Personal Guarantees: Some lenders require director or shareholder guarantees; understand the risks in our guide to personal guarantees.
• Deed of Novation or Assignment: If debt is to be transferred, a Deed of Novation or Deed of Assignment maintains continuity so the priority deed still works with the new party.
• PPSR Filings: Ensure each security interest is correctly described and perfected. If you need help, we can handle the PPSR registration process.

It’s also worth making sure your execution process for deeds and agreements is robust and consistent with the Corporations Act (for example, by following section 127). That small detail can save significant time during funding and settlement.

Key Takeaways

• A deed of priority sets the repayment order and enforcement rules when multiple lenders have security over the same assets.
• Priority over land follows the order of registration on title; under the PPSA, it turns on perfection and time – a deed can reorder priority between the parties, but it doesn’t change how the PPSR ranks interests against third parties.
• Cover the essentials: ranking, standstill and enforcement control, notice requirements, payment waterfalls, turnover, permitted debt/security, and clear amendment/transfer mechanics.
• Coordinate the deed with your loan and security documents (such as a General Security Agreement) and make sure all PPSR and title filings are accurate and up to date.
• Avoid pitfalls like missing parties, vague collateral descriptions and conflicting terms – they can derail enforcement when it matters most.
• Get the execution right (for example, using section 127) and keep your closing deliverables tight so funding and settlement run smoothly.

If you’d like a consultation on preparing or reviewing a deed of priority for your finance arrangement, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.