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A tenant leases premises and obtains finance from a financier (lender) to fund the cost of its fixtures and fittings to be installed in the premises
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The lender takes security over the fixtures and fittings to secure the finance
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The tenant defaults under its finance facility and the lender wishes to exercise its rights under its security in respect of the fixtures and fittings
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The fixtures and fittings are located in (and may sometimes be affixed to) the premises owned by the landlord.
Issue
The issues for the lender are determining what rights it may have in order to gain access to the premises where the fixtures and fittings are located, can the lender remove those fixtures and fittings and if so, what if any constraints may be imposed on the lender by the landlord?
Right of Entry Deeds
The solution for the lender is to require, at the time it provides the finance and takes its security, the tenant to procure from the landlord a deed (commonly referred to as a “Landlord’s Waiver” or “Right of Entry Deed”) under which the landlord agrees to permit the lender, in the event of default by the tenant under its finance facility, to have access to the premises in order to regain possession of its security (the fixtures and fittings).
It is common for landlords to agree to some form of access arrangement (documented appropriately) however the terms of that arrangement can vary significantly. More sophisticated landlords generally endeavour to restrict the right of access and impose obligations on the lender if access is granted.
A “Landlord’s Waiver” or “Right of Entry Deed” would typically include terms such as:
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Any right of access must be subject to the landlord first being given reasonable notice
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Access is to be restricted to certain hours (such as usual business hours)
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A requirement that the landlord be entitled to supervise the removal of the fixtures and fittings
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The right to remove fixtures and fittings will be subject to the lender being required to make good and repair any damage caused by the removal, and
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The landlord would require an indemnity from the lender to protect the landlord and its premises against damage or against a claim by the tenant or a third party challenging the lender’s right and title to the fixtures and fittings removed.
Personal Property Securities Act 2009
The Personal Property Securities Act 2009 (PPSA) will come into effect in October 2011.
The PPSA deals with the registration of security interests in personal property on a national register which will be called the Personal Property Securities Register.
It is not anticipated that the PPSA will impact the existing law on fixtures as between landlord and tenant as the PPSA does not apply to a lien, charge, or any other interest in personal property that is created, arises or is provided for by operation of the general law (such as a landlord’s lien) (s8(1)(c)). Furthermore, the PPSA does not apply to an interest in a fixture (s8(1)(j)).
However, a lender will need to consider whether it needs to register its interest under the PPSA in relation to non-fixture security items.
Summary
It is critical that a lender register its interest under the PPSA (where applicable) and obtain a Landlord’s Waiver or Right of Entry Deed and that this is obtained prior to the lender advancing funds and taking its security. There is no obligation at law for a landlord to enter into such a deed and without it the lender’s rights to have access to the premises and remove its security are quite limited. The most advantageous time for the tenant to seek a deed from the landlord in these terms is prior to signing the lease at a time when the landlord is more amenable to facilitating such an arrangement.
If you have any questions regarding this case or agreements to lease in general, please feel free to contact the DibbsBarker Leasing Team Leader:
