Landlords, commercial fit-outs and the PPSA

The Personal Property Securities Act 2009 (“PPSA”) does not apply to real property, however, landlords must still consider its effects when providing commercial ‘fit-outs’ or plant and equipment as an incentive to incoming tenants.

The fit-out and plant would have previously been considered the property of the landlord and held under retention of title provisions under the premises lease. With the introduction of the PPSA, landlords must now consider registering their interest in the fit-out and in the plant and equipment on the PPSR.

The recent decision of the Federal Court, Carson, in the matter of Hastie Group Limited (No. 3) should act as a warning to landlords. The case does not specifically consider land leases but demonstrates the problems faced by administrators when determining what property is covered by a PPSA registered security interest.

Upon Hastie Group entering into administration, the administrator contacted all secured parties requesting information regarding their PPSA interests. The administrator planned on selling the plant and equipment. Of the registered secured parties, approximately 80% provided details of the PPSA interests to the administrator. The details provided were very general and many secured parties failed to respond. The administrator then applied to the court seeking directions to dispose of the unclaimed collateral. When giving directions Justice Yates at paragraph 10 stated:

“Given the level of generality of many of the registrations in the PPSR …, it has proved extremely difficult for the administrators to rely upon the PPSR for the purpose of identifying property that is subject to third party security interests.”

With regard to Justice Yates’ comments we encourage landlords to consider the following:

Retention of ownership clauses in leases are no longer enough to protect your rights to claim property that you have included under a tenancy;
You should register your interest on the PPSR, and you should adequately identify the collateral you wish to protect; and
Responses to requests from administrators or other secured parties should be timely and detailed.

A further issue that arises for landlords is that the fit-out or property can become so annexed to the premises that it becomes a fixture, which is beyond the reach of the PPSA. Varying tests of annexation have been applied by the courts over the years, which makes it difficult to assess whether something is a fixture or not. If the fit-out is comprised of removable chattels and plant and equipment then a landlord can protect their financial interest under the PPSA. If property is attached, it becomes murky.