Ignore the PPSA at your peril – the Personal Property Securities Act can have a big impact on your real property transactions

With the introduction of the Personal Property Securities Act (PPSA) on 30 January 2012, there has been a dramatic overhaul of the regime for taking and granting security over personal property.  However, as “land” is excluded from the definition of personal property under the PPSA, many involved in the real estate industry have acted on the assumption that it doesn’t apply to them – but do so at their peril.

This is because some payments or contractual obligations in land contracts can give rise to “security interests” in personal property under the PPSA.  In turn, this means that third parties who have previously registered their interest in an individual’s personal property will have priority in the event of insolvency.

Some of the ways the PPSA can affect real estate transactions include:

  • Security deposits under leases: Cash is no longer king! Money held by a landlord as security for a tenant’s performance of obligations under a lease will be classified as a security interest under the PPSA.  Landlords should register their interest in the security deposit on the Personal Property Security Register (PPSR) to protect their interest in the cash they hold.
  • Tenant fitout: “Rights of entry” or “landlord waivers” are being increasingly presented to landlords by their tenant’s financiers.  These documents seek to secure the financier’s right to enter the premises and seize property in the case of a tenant’s default under their finance arrangements.  However, like “mortgages of lease”, they often seek to severely restrict the landlord’s right to terminate the lease or deal with property abandoned by the tenant.  As such they should be treated with caution.
  • Landlord fitout: Landlords should register their security interests in any items of personal property which are leased to the tenant along with the premises (such as furniture, artworks, partitions and the like).  Failure to do so can lead to ownership of these items passing to the controller of the tenant’s assets in the case of a tenant’s insolvency.
  • Contracts of sale: Purchasers of real property should ensure that any items of personal property which will be transferred as part of the sale are not the subject of a registered security, and that if they are, those interests are removed from the PPSR at settlement.

So it’s important that parties entering into real estate contracts consider the implications of the PPSR on those transactions and take the necessary steps to secure their interests.

If you have any queries or would like further information regarding this article, please contact:

David Shelley
Partner
M: 0427 183 217
E: dshelley@pageseager.com.au

Aurora Kostezky
Senior Associate
M: 0407 245 082
E: akostezky@pageseager.com.au

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