Where a landlord leases a premises which includes fittings for the tenant to use, these items may give rise to a security interest in favour of the tenant. Registration of a security interest under the Personal Property Securities Register provides notice of the lessor’s interest in the property whilst it is in the possession of the tenant. Personal property covered by the Personal Property Securities Act (‘PPSA’) includes general property other than real estate and fixtures.
In the recent case of Power Rental Op Co Australia LLC v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed), the New South Wales Court of Appeal determined that the test for determining what is a ‘fixture’ under the PPSA incorporated the established common law principles and did not create a new, distinct test.
Under the common law, whether an object has become a fixture depends on the ‘objective intention with which the item was put in place, having regard to the degree of annexation’.
In determining the purpose of annexation, the Court should have regard to:
- whether the attachment was for the better enjoyment of the property generally or for the better enjoyment of the land and/or buildings to which it was attached;
- the nature of the property the subject of affixation;
- whether the item was to be in position either permanently or temporarily; and
- the function to be served by the annexation of the item – e.g. if it is secured in order for ease of operation of the item.
In assessing the degree of annexation, factors to consider are:
- whether removal would cause damage to the land or buildings to which the item is attached;
- the mode and structure of annexation;
- whether removal would destroy or damage the attached item of property; and
- whether the cost of renewal would exceed the value of the attached property.
Landlords should seek advice in determining whether personal property should be registered, as the consequences for failing to do so can be serious, particularly in situations where the tenant is placed in administration.