The Personal Property and Securities Act 2009 (Cth) (PPSA), which came into effect on 30 January 2012, changes the way in which security interests in personal property are managed across Australia. There is now one single online register called the Personal Properties Securities Register, (“PPSR”) on which any holder of an interest in personal property must register their interest in order to ensure they have a priority claim to that property.
Many affected by the PPSA have come to grips with their obligations but there are issues you need to consider beyond your technical registration requirements.
What you need to know
Real property and fixtures are excluded by definition from the PPSA regime. Nevertheless, transactions involving real estate may still be impacted by the legislation.
Interests in transactions involving real property may require registration if that property is part of a mixed securities arrangement. Some examples include commercial equipment leasing agreements (like retention of title arrangements), hire purchase or lease finance arrangements and bailment agreements.
Consequently, a landlord’s interest in property may require registration on the PPSR, if the landlord leases goods, provides finance or provides a fit-out to a tenant as part of a lease arrangement and wants to ensure that ownership over the relevant property is secured.
The failure to register a security interest on the PPSR could result in the loss of that unregistered (unperfected) interest to another party whose interest is perfected and therefore has priority.
If a tenant is insolvent, all personal property in the tenancy may vest in the liquidator or trustee in bankruptcy, despite the fact that the landlord owns that property, unless the landlord has properly registered their interest in that property on the PPSR.
While the Australian Banker’s Association and the Australian Finance Conference have developed a Deed of Release and Undertaking of a security agreement. In the context of sale of land transactions, we have encountered resistance from vendors to provide the purchaser with a full or partial Deed of Release because the lender or financier fears losing its priority. In these circumstances, purchasers need to identify the significance of the personal property and whether they can rely on any of the “extinguishment” provisions.
The broad definition of security interests under the PPSA is the primary reason that commercial agreements involving real property are affected by the legislation, as the definition goes to the substance rather than the form of the agreement. Therefore, a landlord in a commercial lease arrangement may have an interest “in substance” in certain personal property in the tenancy, which must be perfected by registration in order to ensure priority over other competing interests.
A PPSA checklist for Landlords
Investigate whether any security interests on non-migrating registers need to be registered on the PPSR. While most existing registered interests should have been migrated to the PPSR, we have seen many instances where:
- charges previously registered on the ASIC Register of Charges have not migrated across to the PPSR;
- charges that have been previously satisfied have been migrated across as undischarged;
- security interests that were attached to specific assets (e.g. a fixed charge), were reclassified incorrectly on the PPSR as over all present and after acquired property; and
- information regarding secured parties have not been properly transferred.
- Accurate and complete details of the relevant security interest must be included on the financing statement that is lodged on the PPSR to ensure your security interest is perfected. A financing statement that contains errors may be ineffective;
- A lease of land and goods should be registered on the PPSR. All contractual incentives given by landlords in the leasing arrangement will need to be reviewed and registered as necessary;
- Purchasers of real estate will need to consider if the acquisition involves any personal property, for example, stock-in-trade, consignment or bailment items. Additionally, purchasers should check the PPSR for any existing security interests over all items valued over $5,000 or not for personal, domestic or household purposes included in the sale and seek appropriate releases from any security holders;
- Purchasers of development sites, should check to see whether any drawings, designs and other intellectual property associated with the site are registered on the PPSR;
- Keep track of all financing statements registered against you on the PPSR and seek a discharge or amendment where necessary.