The Personal Property Securities Act 2009 (Cth)
("PPSA") does not apply to land. However, it does not
clearly deal with who has the best ownership of chattels located on
The "grey areas" are demonstrated in the following
Mr and Mrs Jones enter into a contract of sale to purchase a
house together with certain chattels. ABC Bank Pty Ltd has a
security interest over the current owner's personal property
that is registered on the Personal Property Securities
Who has the best claim to the chattels sold with the house?
Mrs and Mrs Jones or ABC Bank?
Dr Jones leases a commercial premises for his medical
practice. Dr Jones has decided to purchase an MRI to use in his
practice. Dr Jones approaches ABC Bank Pty Ltd who agrees to lend
Dr Jones the funds he requires to purchase the
The MRI is purchased using the funds advanced by ABC Bank
and installed in Dr Jones' premises using heavy duty bolts that
are driven into the concrete floor of the premises. ABC Bank
registers its security interest as a PMSI on the Personal Property
Securities Register but does not enter into any other agreements
with the landlord of the premises.
Dr Jones hits hard times and becomes bankrupt. Who has the
best claim to the MRI? ABC Bank or the landlord?
The answer is unclear as it depends on the nature of the
particular chattel, the degree of annexation of the chattel to the
land and the intention of the parties.
The PPSA defines "land" as including "all estates
and interests in land, whether freehold, leasehold or chattel, but
does not include fixtures." This should be read that sometimes
chattels become part of the land.
Property law in Australia has long held that a chattel can
become part of the land if it is sufficiently affixed to it. The
tests used to determine whether a chattel has become a fixture
the purpose of annexation;
the nature of annexation;
the degree of annexation; and
the intention of the parties.
Although the above common law tests are consistently applied in
the Courts, the outcomes are often inconsistent. That is because
the determination of whether a chattel has become a fixture often
comes down to the facts of each case. For example, Courts have held
that carpets, light fittings, electrical wiring and installed
stoves and dishwashers are fixtures whereas other free standing
items are chattels.
Mitigate the risk of arguments (and possible damages claims)
arising in relation to chattels located on real property by
considering the following steps:
Vendors and purchasers need to proceed with caution when the
status of a chattel (whether fixtures or chattels) is in doubt.
Vendors need to be particularly careful about what they
represent as forming part of the sale and make sure in advance that
any secured creditor will release any security over chattels that
may not be fixtures.
Purchasers should require a secured creditor to confirm that it
either does not consider the chattels (that are clearly not
fixtures) are subject to its security interest or will release its
interests in those chattels at settlement.
Equipment financiers should foreshadow disputes arising when
they finance large pieces of equipment that may need to be affixed
to real property. In addition to registering a security interest
over the equipment on the PPS Register, equipment financiers should
also consider requiring the landlord (and any freehold mortgagee)
to enter into an agreement consenting to the installation of the
equipment in the premises, acknowledging the equipment
financier's security interest over the equipment, waiving any
right the landlord/freehold mortgagee may have to the equipment
and/or allowing the equipment financier to remove the equipment on
The agreement with the landlord/freehold mortgagee should be a
condition precedent to any advance for the purchase of the
equipment and should be entered into before the equipment financier
gives the doctor possession of the equipment.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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