Under most leases tenants pay some form of security, usually by way of a bank guarantee or security deposit (bond). The security deposit (being “personal property” under the Personal Property Securities Act 2009 (Cth)) (PPSA) is used to secure performance of the tenant’s lease obligations. This creates a “security interest” for the purposes of the PPSA and the landlord becomes a secured party.
SO WHAT DOES IT MEAN FOR ME AS A LANDLORD?
ISN’T CASH SIMPLY CASH?
The security interest in favour of the landlord can, and should be, registered on the Personal Property Securities Register (PPSR). If the landlord doesn’t, in the event of insolvency of the tenant, the security deposit likely vests in the tenant and the landlord has to join the queue as an unsecured creditor.
Most landlords are familiar with the distinction that a tenant provided bank guarantee provides security in favour of the landlord and does not require registration with the PPSR. The reason for this is a bank guarantee is a contractual promise to pay and it does not confer a security interest in personal property.
In essence, if you are going to hold a security deposit (bond), registration on the PPSR is important.
If you would like advice on how to go about this or on other lease risk mitigation strategies, please contact Terry Rosewarne – Head of Asset Management & Advisory on 0401 086 202.