Business Advisory

Commercial Leases v PPSA – the new insolvency battleground?

B2B Editor 20 October 2015

The Personal Property Securities Act 2009 (PPSA) is now an entrenched part of the Australian business landscape. However, an increasing interest is being taken (particularly by insolvency practitioners), in the interaction of that statute with provisions contained in commercial leases.

Prior to the implementation of the PPSA, the common practice amongst lessors of commercial premises who provided chattels (whether or not fixtures) to protective tenants was to annexe the inventory of chattels to the lease. In that way the lease would also cover the ‘lease’ of the chattels.

Since the implementation of the PPSA, the treatment of such items has become less clear. The PPSA does not deal with land, or things attached to land (fixtures), so the concept of what is and what is not a fixture remains beyond the PPSA.

However, what has emerged from recent cases is the tendency for the PPSA to treat ancillary chattels, that are not capable of being classified ‘fixtures’, as a separate (and separable) class of asset and the ‘lease’ of these to the tenant as a PPS Lease (under s.13 of the PPSA). Such a lease in those circumstances requires separate registration on the Personal Property Securities Register (PPSR) in order to be enforceable against third parties – in particular, liquidators.

In two recent matters, a landlord’s entitlement to retain assets purportedly covered by a commercial lease was successfully challenged where those assets were not subject to a separate PPSR registration.

In the first case, an unassigned lease subject to a business sale agreement purported to include the lease of certain assets deemed necessary by both landlord and tenant for the conduct of the tenant’s business. Upon the insolvency of the tenant’s business, the assets purportedly subject to the lease were retained by the Liquidator for the benefit of creditors, as distinct from the premises fit out and fixtures, which remained subject to the lease.

In the second case, a landlord had secured personal property (by way of undocumented hire and lease arrangements) for a tenant and asserted that his property rights in those items were dealt with by the commercial premises lease. Again, upon an event of insolvency the Liquidators were successful in defeating the landlord’s (and in this case the primary hirer’s) interest and retained the goods.

Commercial landlords would be well advised to review the terms of their lease documents to ensure their rights are protected in insolvency events.

tony-lane

Tony is a Director at Vincents Chartered Accountants
and provides specialist advice to clients in the areas of insolvency, business risk
and financial conflict and dispute resolution. For more information, contact
Vincents, Level 7, AMP Tower, 1 Hobart Pl, Canberra City.
T: 6274 3400 F: 6274 3499 E:[email protected] W: www.vincents.com.au

vincents

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