Landlords beware! Lease security deposit and the PPSA

Property leases commonly include provisions that require the tenant to provide some form of security deposit or bond (Security Deposit).

The Security Deposit (being “personal property” under the under the Personal Property Securities Act 2009 (Cth) (PPSA)) is used to secure performance of the tenant’s obligations under the lease. This creates a “security interest” for the purposes of the PPSA and the landlord becomes a secured party.

The security interest in favour of the landlord can and should be registered on the Personal Property Securities Register (PPSR).  If a landlord does not register its interest then, in the event of insolvency of the tenant, the Security Deposit is likely to vest in the tenant and the landlord will have to join the queue as an unsecured creditor.

A bank guarantee provided on behalf of a tenant in favour of the landlord will not fall within the scope of the PPSA. This is because a bank guarantee is a mere contractual promise to pay and it does not confer a security interest in personal property.

In order to avoid the administrative burden of registration on the PPSR, landlords may wish to request that tenants provide a bank guarantee as opposed to a Security Deposit. However, to the extent that a Security Deposit has been provided, registration on the PPSR is important.

Fletcher Law has lawyers experienced in all aspects of leasing and the PPSA. If you require assistance with these please contact us.