The Impact of the Personal Property Securities Act 2009 (Cth) on Commercial, Retail and Industrial Leases – Article Summary
By Alexandra Johns-Putra, Lawyer
The Personal Property Securities Act 2009 (Cth) (“PPSA”) introduced a national register for the registration of personal property security interests. The Personal Property Securities Register (“PPSR”) is an online register of security interests held in personal property.
A security interest is an interest in personal property that secures payment of a debt or other obligation. Registering a security interest on the PPSR “perfects” the security interest and gives the holder priority over unregistered interests and ensures that the security interest survives the bankruptcy or insolvency of the grantor.
Leases that only convey an interest in land are not covered by the PPSA but a landlord may have a registrable interest:
- for leases of chattels in addition to the leased premises;
- for contributions to the fit-out of the premises;
- where the landlord receives a cash deposit for the lease; and
- in respect of abandoned goods left at the premises on the expiry of the term of the lease.
A cash deposit in a bank paid by a tenant as security for the performance by the tenant of its obligations under the lease, irrespective of whether it is held by the landlord, is the property of the tenant. Whilst a landlord may have a registrable security interest under the PPSA over the security deposit, if the tenant owes money to the bank holding the deposit, the bank could have priority over the deposit.
The recommendation is to seek a clear indication from the bank in writing that it will not assert its right over the landlord in accessing the deposit or obtain a declaration from the bank that it does not have a security interest over the deposit.
Commercially, however, and bearing in mind the likely difficulties in getting a declaration from the bank, the better approach would be to obtain a bank guarantee and avoid security deposits.
Personal guarantees and bank guarantees generally do not give rise to a registrable security interest unless the guarantee incudes a surety as collateral.
Although fixtures qualify as personal property under the PPSA, interests in fixtures are excluded from the application of the PPSA but landlords should consider whether any part of their contribution to a fit-out may be considered a chattel and subsequently able to be protected by registration on the PPSR. This could include for example, types of furniture.
Most leases have a clause dealing with abandoned goods left at the premises upon the expiry or other termination of the lease. A clause that provides the landlord with a right to acquire and sell or otherwise dispose of abandoned goods after a specified time will give rise to a registrable security interest.
The registration process for security interests can be cumbersome and it is important to weigh up the value of the goods against the burden of registration, re-registration on assignment and removal of the registration on expiry of the lease. This is particularly relevant in relation to abandoned goods as the value of goods left behind (if any) may be so small that the cost of registration and administration could outweigh any potential benefit.
Statutory penalties can be imposed where parties do not comply with the PPSA. Landlords should consider whether it is prudent to contract out of some of the obligations that apply under the PPSA.
Registering a Security Interest
Registration of a Security Interest is made by lodging a financing statement containing particulars of the transaction, the collateral and the security interest.
It is particularly important that landlords ensure that they comply with the PPSA and properly register their security interest on the PPSR. In some cases, if registration is not made within the appropriate time frame or if a financing statement is incorrectly completed, the registration will be defective and the landlord can lose their priority status. This can result in a landlord being unable to enforce their security interest against third parties or on the bankruptcy or insolvency of the tenant.
If you have any questions about the PPSA and how it affects your lease, please contact us.
This article is a summary of an article by Nick Anson and Vicki Bell on the Impact of Personal Property Securities Act 2009 (Cth) on Commercial, Retail and Industrial Leases published in the Australia Property Law Bulletin (May 2012).