PPSA & Real Estate

There seems to have been a flurry of activity over the last month with a number of our clients being pestered to discharge PPSR registrations on the basis that they are impeding the sale of real estate property.

While this is an obvious nonsense it is, unfortunately, being propagated by a number of legal professionals and is becoming such a nuisance that I was asked to draft up a letter on behalf of a client which they could then send to their customers.  

Our client sells building materials which go to form an integral part of the structure of a building and their immediate customers are usually builders who will then be selling the resulting building.

The draft went as follows:

The Personal Property Securities Act 2009 (PPSA) was passed by Government in an attempt to simplify and clarify how security interests are treated across the whole of Australia. 

One of its key elements has been the creation of a national register (the PPSR) where the holders of security interests are encouraged to register the existence of those interests.  As a matter of company policy, we have decided that we will register all our security interests on the PPSR.

Our registration is strictly in relation to a security interest we maintain over the goods we supply in the form of a Retention of Title clause enshrined in our standard Terms & Conditions of Sale.

Our registration on the PPSR is purely a means to safeguard our position against any competing claims from other creditors and should not, as a matter of practicality, change our normal trading relationship with you nor indicate any concerns regarding your value to us as a trading partner.

However, the PPSA is still relatively new to everyone and misunderstandings abound – particularly with organisations which you might think would know better such as banks and solicitors. 

One such misunderstanding may arise when you are attempting to sell real estate property. 

During the sale process, someone (usually a conveyancer) will discover that [Client Name] holds a PPSA security interest against your business and will decide that the real estate sale cannot be concluded until [Client Name] has released and/or discharged its security interest.

If this occurs you should point out to whoever draws this to your attention that the PPSA does not apply to the sale of real estate or to any fixtures attached to such property.

For further confirmation you may direct interested parties to the PPSR’s web site at www.ppsr.gov.au where it clearly states that:

Under the Personal Property Securities Act 2009 (Cth), personal property is defined as any form of property other than land, buildings or fixtures that form part of it or a right (such as water rights), entitlement or authority.

You may also make reference to Section 8(1)(j) of the PPSA which specifically identifies fixtures as an item of property to which the Act does not apply and Section 10 of the same Act which defines the Act’s use of the term fixtures.

Our registered security interest applies to rights we hold to recover unpaid goods that we have supplied up until the point those goods are incorporated into a building and become fixtures. 

After that point our security interest transfers to a portion of any proceeds that may arise from the sale of that property but no longer applies to the property itself.

Please feel free to send a copy of this letter to anyone requiring the release of our PPSA registered security interests as a pre-condition to allowing the sale of real estate to go ahead.  When presented with a request based upon a misunderstanding our inclination is to dispel the misunderstanding rather than perpetuate it by humouring the request.

I have a particular fondness for the last line although I don't doubt that this would be one of the more likely elements to be edited out by anyone choosing to base their own letter on this draft.

Feel free to use the draft as you see fit (although if you want to publish a version on your own website I'd appreciate the credit).

P