Following my last update on the PPSA and its impact on suppliers and distributors of goods, I thought I would explore fixtures in a little more detail.
The exclusion of ‘Fixtures’ from the operation of the PPSA is a matter of great concern, and confusion. When personal property is affixed to land it ceases to be the subject of a security interest under the PPSA because it forms part of the land and is therefore excluded from the operation of the PPSA.
During a recent presentation I gave on the PPSA and its impact on suppliers and distributors of goods, delegates asked the following questions, highlighting some of the the issues for suppliers and distributors.
Q. Would the supply of an irrigation system once installed, be regarded as a fixture?
If the irrigation system is in the ground it will be a fixture. If it is above ground and detachable it probably is not a fixture. Whether something is a fixture or not depends on tests in the case law. In summary, an item would become affixed to land when the object and the degree of the annexation means that the item becomes part of the land.
The object or purpose of the attachment is relevant:
- Has the item been affixed permanently or merely for a temporally purpose?
- Has the item been attached to improve the land or buildings on the land or for better use of that item?
The degree of annexation refers to how the item was affixed. How securely or permanently has it been affixed and the damage that would be caused to the property or the item by its removal. There is case law that has held that sewer and water pipes, and underground tanks are fixtures.
Q. Does a vending machine business have to register each machine ID, each location & each client name to protect ownership title to each vending machine?
I assume that the vending machines are leased or hired for a term exceeding 1 year. The definition of a PPS lease relevantly provides:
‘13(1) A PPS lease means a lease or bailment of goods:
(a) for a term of more than one year; or
(b) for an indefinite term (even if the lease or bailment is determinable by any party within a year of entering into the lease or bailment); or
(c) for a term of up to one year that is automatically renewable …; or
(d) for a term of up to one year, in a case in which the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted possession of the leased or bailed property for a period of more than one year after the day the lessee or bailee first acquired possession of the property …’
If the vending machines are leased/hired to different grantors then a separate security interest will need to be registered on the PPSR in respect of each grantor. It would be registered under the collateral class of ‘tangible property – other goods’. It would be prudent to insert in the free text field particulars of the location of each vending machine.
If multiple vending machines are leased/hired to one grantor, and there is insufficient space in the free text field (which takes up to 500 words), an attempt should be made to give the best description possible. It may be possible to attach a schedule to the registration even though it is not an intention of the PPSR to be a document lodgement system.
Q. We supply structural timber for houses. If this then becomes a fixture and part of land, can we protect our interest/ title? In relation to the supply of timber, what about proceeds?
The timber will become a fixture and as such form part of the land. The PPSA does not apply to land.
The security interest will attach to the ‘proceeds’ in respect of the sale of the timber when received. The use of the timber for building purposes necessarily would give rise to either express or implied authorisation that the timber would in effect be disposed of (by becoming a fixture to land) in the same way that goods supplied to a retailer are disposed of when they are sold to a customer. In this situation Section 32 says that the security interest ‘attaches to the proceeds, unless the security agreement provides otherwise.’