The phrase rights in the collateral is potentially misleading. It simply means that the grantor either

(a) already owns, or has another interest in, collateral that they can encumber by granting a security interest, or

(b) the grantor receives rights in collateral where they started with none.

For instance, a grantor may lease property and so obtain a leasehold interest, or buy property on conditional sale (retention of title) terms and receive the right to possess and use property while they pay off the purchase price.

A grantor has rights in collateral for the purposes of attachment even if they do not own collateral but merely have the right to possess or use the collateral under say a lease or conditional sale (retention of title arrangement), or a consignment transaction. This is one way in which the PPSA unwraps title-based security interests and treats all transactions that grant an interest in personal property to secure obligations equally as mere security interests. This is referred to as the functional approach, being to look to the function (or substance) of transactions rather than their form. This approach is also sometimes referred to as the uniformity principle, being to treat all transactions that are in substance security interests uniformly.