An insolvent tenant is among a landlord’s worst nightmares. This is largely because a landlord is typically an unsecured creditor who winds up with a small portion of what they may be owed after liquidators are done. Their situation can be even worse if they find their investments in plant and equipment, made to attract the tenant in the first place, can legally be sold by the receiver for using the proceeds to pay a tenant’s secured creditors.
The good news is that the painful scenario of losing priority of ownership over your personal property is avoidable by registering these “security interests” – such as plant and equipment you own – with The Personal Property Security Register.
This is a national electronic central register established under federal government legislation in 2012 for recording any security interests in goods or any debts owed to you. When it comes to commercial real estate, this is the only way for a landlord to retain priority of ownership over their personal property should their tenant go belly up.
However, many in the legal industry believe the PPSR and the protection it provides (for little cost) suffers from widespread lack of awareness. According to Rod Lindquist, consultant for JHK Legal, this could be up to 85 per cent of those affected.
“In my experience those in the finance, insolvency and legal industries are reasonably aware of it but there’s a fairly large proportion of those in the commercial property and other industries who aren’t,” Mr Lindquist says. “I was recently talking to the senior people for a major general insurer about assessing risk and asked them what they did in terms of the PPSR – and I got a blank look.
“Basically, most people don’t understand that there has been a major reform to the law in terms of personal property. It is probably one of the largest changes in legislative law in our century. The bureaucrats had a massive education campaign prior its introduction in 2012 but not since.”
It’s important to understand the terms, too, used by the PPSR. Registering a “security interest” – your personal property - with the PPSR means it has been “perfected”. Doing so means not only is personal property fully protected from a failed tenant’s receivers, it can also help a landlord re-let their premises faster and even result in allowing them to sell or lease the defaulter’s property to a new tenant without having to go through the courts. Furthermore, registering personal property does not extend to anything deemed a “fixture”.
PPSR registration also applies when a landlord gives a fit-out incentive to a tenant to buy plant and equipment yet retains ownership of those purchases; to cash bonds paid by tenants to abide by their obligations under the lease; and when a tenant abandons a site leaving plant and equipment behind.
Cash bonds, like plant and equipment, if not “perfected” with the PPSR risk seizure by an administrator should a tenant become insolvent. Landlords should also ensure their lease contains a clause allowing them to register plant and equipment on the PPSR and then do so at least 20 days before the tenant moves in.
Of utmost importance for commercial property owners however is understanding exactly what defines personal property in the eyes of the PPSR, how it is classified and then following this to the letter. This is where the devil truly is in the detail: while not as difficult as it may first appear, the PPSR requires much information which must be correct.
A trick for newcomers is, for instance, what constitutes a fixture as these are excluded from the PPSR. Along with describing your goods correctly, there may be additional requirements for your particular registration if your personal property comprises what the PPSR defines as “serial numbered goods”.
“Filling out the electronic forms online is a relatively simple process, “Mr Lindquist says. “We train people to do it and then they go off and do it themselves. But you need to have an understanding of what collateral class your personal property falls into and this is easy to learn from the PPSR website.”