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Landlords and tenants would be forgiven for thinking they need
not worry about the new Personal Property Securities Act 2009
(PPSA), which commenced on 30 January 2012. After all, the new law
refers to personal property, not land, so there should be no
problem. However the PPSA has implications for real estate as
well.
In general terms the PPSA creates a national registration system
for security interests in tangible (and some intangible) items of
personal property, which basically means property other than land.
Someone with an interest in tangible property like goods or
equipment ("chattels") can register that interest on the
PPS Register. The PPSA is specifically prevented from applying to
an interest in a tangible item of property when that item is
sufficiently annexed to land such as to be deemed a fixture.
However, there is a difference between how a fixture is defined
under the general law and the definition of a fixture in the PPSA.
Basically, it has to do with the degree of "annexation".
The fact that over the years the courts have been somewhat variable
in applying tests of annexation has created uncertainty and led to
disputes between landlords and tenants.
The issue most clearly arises when fixtures and loose chattels
are to be removed from the premises at the end of a tenancy. If
they are not removed the lease usually provides that they then
belong to the landlord. A landlord is helped in this regard by the
fact that where some chattels are so annexed to the premises as to
become fixtures they are put beyond the reach of the PPSA. Thus the
terms of the real property lease take priority over the
financier's PPSA security interest registered against the
tenant.
On the other hand, the degree of annexation of these
"tenant's fixtures" may be challengeable, or it
may be that the fixtures were intended to be removed at the end of
the lease anyway. In such cases the items in question should not be
regarded as fixtures. The tenant's secured lender may have
a claim on them in priority to the landlord, despite what the lease
may say.
An example of this tricky situation is where an owner of
commercial kitchen equipment supplies the equipment on
Retention-of-Title ("ROT") terms to a tenant's
premises. The equipment is to be used in the tenant's
restaurant business and accordingly must be fixed to the premises
for proper use. In the light of the PPSA the supplier of the
equipment would be expected register its ROT security interest on
the PPS Register.
Because of the risk that the kitchen equipment could be deemed
to be a fixture and thus fall outside the PPSA, the supplier might
also seek a right-of-entry waiver with the landlord (and even the
mortgagee). In this way it is made clear that the
landlord's interests do not extend to the equipment even
though it is annexed to the real estate.
If the tenant vacates its tenancy leaving goods and equipment
behind the landlord might have a claim to the fixtures at least,
under the lease, or even based on general law. On the other hand, a
signed waiver together with the PPSA registration would probably
decide the issue in favour of the equipment supplier.
When it comes to loose items the landlord may not necessarily
have a claim either, despite the terms of the lease, as a search of
the PPSA register will disclose that the supplier has its prior
ranking ROT interest in those items. Another secured party such as
the tenant's financier may even rank ahead of the
landlord.
In conclusion, now that the PPSA is in operation, real property
lease documents should make clear how a landlord can deal with
items of personal property left behind when the lease is terminated
or if the tenant vacates the tenancy. The landlord should always
search the PPSA register in order to determine whether any other
party should be consulted prior to dealing with the items. On the
other hand if a claim is made asserting a PPSA interest, a landlord
should not be bluffed into accepting the secured party's
position without first making investigations and considering the
legal definition of fixtures as applied under the PPSA.
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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