Insecure About Being an Unsecured Creditor? Registering Landlord Security Interests on the PPSR

Insecure About Being an Unsecured Creditor? Registering Landlord Security Interests on the PPSR 

The PPSR

The Personal Property Securities Register (PPSR) is the official government register of security interests in personal property.  It is as an online noticeboard which allows parties to register security interests in personal property or to search the database to see if particular property is covered by an existing registered security interest.

The PPSR is governed by the Personal Property Securities Act 2009 (Cth) (PPSA).[1]

What is a security interest?

A security interest is a type of right in personal property that can be registered on the PPSR.  The PPSA defines personal property to include all forms of property other than land, buildings and fixtures, encompassing both tangible and intangible property.[2]

Security interests typically arise under agreements between parties to secure the repayment of a debt or the performance of an obligation.  Common examples under a lease include security bonds, fitout or plant and equipment owned by the landlord, and property left in the premises by the tenant at the end of a lease.

Why register?

Registration under the PPSA is advised to protect a landlord’s security interest in personal property under a lease. 

Timely registration of a security interest can:

• prevent the secured party from losing its priority as against most other secured parties; and
• ensure the secured interest survives bankruptcy or insolvency of the tenant.

When multiple parties have a security interest in the same property, established rules determine which party has priority.  Generally, the party with the highest priority secures the first right to enforce their security interest.

When should registration occur?

Registration should occur as early as possible.  As a general rule, registration should occur within 15 business days of a tenant taking possession of the leased premises or signing the lease.

This is because time is of the essence when registering an interest on the PPSR.  Generally, where there are two competing registered interests, the one registered earlier in time will be given priority.

An exception to this is the registration of a special type of security interest called a ‘Purchase Money Security Interest’ (PMSI).  Strict registration requirements apply to register a PMSI.

A PMSI is given “super priority” over other security interests if it is registered on the PPSR within the following timeframes:

• where the property is classified as “inventory” (e.g. stock), before the tenant obtains possession of the property; and
• where the property is not classified as “inventory”, within 15 business days from the day the tenant obtains possession of the property.

Priorities

The position in relation to priority of security interests under the PPSA can be broadly summarised as follows:

• PMSIs have priority over other PMSIs registered later.[3]
• PMSIs, even if registered later, have priority over other registered interests.[4]
• registered interests have priority over those registered later.[5]
• registered interests (perfected interests) have priority over unperfected interests.[6]

Key takeaways

Registration under the PPSA is advised to protect a landlord’s security interest in personal property under a lease.  Registration usually protects that interest against third-party claims over the property in the event of a tenant’s bankruptcy or insolvency.  Timing is important, as particularly where PMSI requirements are met, swift registration can provide “super-priority” over the security interest against other registered or secured creditors.

The registration of security interests on the PPSR is a complex area.  This article is intended to provide general information only.

Lavan can provide specific advice and assistance with registration of security interests and drafting appropriate provisions in leases to enable swift registration.