RSM Australia

PPS - how can landlords best protect themselves from an insolvent tenant

Landlords and tenants may be tempted to dismiss the relevance of the Personal Property Securities Act(PPSA). After all, the answer is in the title of the legislation. It relates to personal property, not real property.

However, the PPSA may have relevance to landlords and tenants in arrangements where a landlord leases personal property to a tenant and the lease is classified as a PPS Lease. Common examples of PPS Leases include leases of greater than 90 days or an indefinite term (serial numbered goods) and leases of other goods for a term of greater than one year or an indefinite term. Such leases are defined as PPS Leases in the PPSA and are deemed to be security interests.

In the right circumstances, the PPS Lease provisions of the PPSA permit liquidators to sell other people’s goods.

This is may occur when PPS deemed security interests are not perfected by registration on the Personal Property Securities Register (PPSR). Unperfected security interests can be extinguished on the appointment of a liquidator or administrator of a company. 

The danger zone for landlords is where:

  • the landlord as owner leases or bails personal property to a company for value and the lease is part of the landlord’s usual business of leasing or bailing goods
  • the arrangement constitutes a PPS Lease
  • the landlord fails to register his security interest on the PPSR
  • the company becomes insolvent and appoints an administrator or a liquidator

If all these things happen, the liquidator or administrator may be entitled to retain the property and deal with it in the course of the external administration. That is, sell the property of someone else.

It is not uncommon for a landlord to lease personal property (as distinct from fixtures) to tenants as part of a leasing package to attract a particular tenant. For example, a fully equipped restaurant or bar premises ready for trade.

Such circumstances can also extend to residential premises if the landlord leases personal property, such as furniture and appliances which is not defined as consumer property, as part of a lease of premises and the lease is for a term of more than one year. 

Landlords should also be alert to the consequences of dealing in personal property abandoned by a tenant, including in circumstances where a liquidator or administrator is appointed. This is because the landlord may be exposed to legal proceedings if:

  • the landlord has failed to perfect a security interest
  • a prior ranking security interest is registered on the PPSR by a secured party, such as a finance company
  • no prior security interests are registered but the liquidator or administrator has not disclaimed the property

To protect against these risks, landlords should consider:

  1. incorporating PPSA provisions into lease agreements when arrangements include lease of personal property
  2. registration of deemed (or specific) security interests on the PPSR before giving possession to a tenant
  3. searching the PPSR for a prior ranking security interests in property abandoned by tenants
  4. seeking disclaimer or collection of personal property of companies in liquidation or administration 

RSM’s Restructuring & Recovery experts advise on issues that may arise from the PPSR or related issues for insolvent or near insolvent companies.

Our services are available nationally. Please contact us for detailed information.