Good Practice for Landlords
21 January, 2019Commercial Leasing, Landlord & Tenant DisputesDispute Resolution, Insolvency and LitigationProperty Law, Development & Conveyancing
Gold Coast business insolvencies
The Gold Coast has recently had a number of businesses go insolvent which have been widely reported on. These include a number of restaurants, bars and other well-known local businesses.
Landlords out of pocket
In an insolvency event, not only do the usual creditors miss out, landlords are often out of pocket for unpaid rent and other amounts they are owed under their lease.
Matters can become even more complex for landlords with a tenant in liquidation where they end up in dispute with the liquidator regarding plant and equipment in the premises owned by the landlord, fit out incentives provided to tenants, cash bonds held to secure the tenant’s obligations and abandoned plant and equipment left behind by a tenant which would be useful to a replacement tenant.
Protection may be available to landlords using PPSA
With this in mind, landlords should not fear. When negotiating their leases, landlords should advise their lawyers to consider the relevant provisions of the Personal Property Securities Act 2009 (Cth) (“PPSA”) as the provisions of this legislation will offer them some protection.
As has been written by us in earlier articles, parties can use the PPSA to become a secured creditor and therefore, in most cases, have a priority ahead of unsecured creditors. In order for a landlord to obtain a security interest in property or assets (and therefore be secured), it must register their interest on the Personal Property Securities Register (“PPSR”).
PPSA and leases
The PPSA defines personal property widely but with respect to leases, such would include:
- plant or equipment in the leased premises (but not fixtures); and
- bonds provided by the tenant under the provisions of the lease.
Registration on PPSR may avoid disputes with liquidators
If a landlord properly registers their interest in these items on the PPSR, disputes with liquidators may not arise as:
- any plant and equipment in the premises owned by the landlord would not vest in the liquidator and would remain the ownership of the landlord;
- when it is agreed that an incentive would be given to a tenant for fit out but the landlord would retain ownership in it, such fit out would vest in the landlord and not the liquidator;
- cash bonds will remain the property of the landlord; and
- any seized or abandoned goods of the tenant left at the premises would pass to the landlord so they could, for example, sell these goods to mitigate their losses.
In conclusion we encourage all landlords to undertake a review of their leases to ensure that they have the proper PPSA clauses drafted in them to offer them the best protection.