Generally the Personal Property Security Act, as you would be aware from our previous newsflashes, does not deal with real property. However there are some occasions when parties to a real property transaction need to consider whether or not a security interest may have been created and thus need some form of protection via the Personal Property Security Register.
This is relevant in lease matters either when chattels are left in premises for a tenant or a landlord makes a contribution to a tenant towards the cost of fit out.
Use of Chattels
Chattels (tenant’s fixtures and fittings and perhaps furnishings) which are left in the premises by a previous tenant are often left in the premises when the landlord re-lets the property. If the landlord is asserting ownership of those chattels then it should ensure that interest is protected by registering it on the Personal Property Security Register. If it fails to do so then those chattels may be claimed by third parties (perhaps creditors of the previous tenant) who may themselves have a better security interest.
Contribution to Fit out
When the contribution to a tenant’s fit out is used (wholly or partly) for chattels and tenants fittings, such as gaming machines, televisions, general fit out, crockery and cutlery in a restaurant, security equipment and the like, those are items of personal property. They are not covered by the landlord’s entitlement to the land and fixtures and if it is intended that the landlord is to own those items of personal property then the lease will require an appropriate clause entitling the landlord to be provided with relevant details (including serial numbers for items which have such) and to register its security interest. If the goods are intended to be the tenant’s property but financed by the landlord (for example where an incentive clause has a claw back arrangement should the tenant breach the lease when such incentive is required to be repaid) then the landlord could be entitled to a PMSI (a purchase money security interest) and therefore the lease needs to document that arrangement and allow the landlord to register its interest.
This is an evolving area at present and it is therefore important that landlords consider when negotiating for incentives just what is intended in terms of ownership of fit out and the items comprising the fit out.
Please contact any member of our property team for further advice.