Has your equipment become a fixture?

Has your equipment become a fixture? PPSR hot topic

Background

A dispute over a linear accelerator sounds like a James Bond movie but such dispute went to Court a few years ago. A landlord, an equipment supplier, an administrator and bank all claimed an interest in the $9 million medical equipment and the eventual winner was the equipment supplier who sold the linear accelerator on credit.

(In the matter of Cancer Care Institute of Australia Pty Ltd (administrator appointed) [2013] NSWSC 37)

What is a fixture?

Fixtures are chattels (personal property) that are annexed to land with a degree of permanence so as to be considered part of it. This means that if a chattel (in this case a linear accelerator) is considered by a Court to be a fixture in an insolvency scenario, the landlord may assume title to it. The general rule at law is that an object merely standing on its own weight on land will not ordinarily be a fixture; it must be anchored or moored in some way to the land on which it stands.

What is the key test for determining whether a chattel is a fixture?

The degree and object of annexation to the land, i.e. how steadfastly it is affixed and whether it’s fixing to the land was intended to be permanent.

This was articulated by Murray CJ in ‘In Re May Bros Ltd (1929) SASR 508′:

“If an article is embedded in the soil or is attached to any building or permanent erection thereon by cement, mortar, solder, bolts, screws, nails, spikes or another permanent fastening, it is a prima facie a fixture unless it has been agreed between the parties or can be inferred from the circumstances, that it was not to be a fixture.”

However, this rule was varied in Australia in the case of Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 701 where theatre seats which were bolted to each other and the floor were determined by the Court to be chattels. This was because their annexation to the land was for a temporary, transient purpose; for the operation of a movie theatre business on the land. Given the business owners’ intention to maintain control of and over the business and its associated property regardless of any changes relating to the location of trade, the Court determined that the seats were chattels, belonging to the proprietors of the theatre company.

Similarly, in the above case, the linear accelerator was bolted into the floor of the premises so the landlord claimed that it was a fixture. Rebutting the common law presumption that chattels affixed to land (here, by bolts) are prima facie fixtures, the Court found that the equipment was a chattel. This was based on the Court’s assessment that it was the intention of the purchaser of the equipment (i.e. the company in administration) that the equipment be moveable, and an asset of the company, rather than a permanent addition to the land to be left behind for the landlord’s taking upon vacating the premises.

Can interests in personal property be registered?

Yes. The Personal Property Securities Act created a new form of a security interest in chattels called the Purchase Money Security Interest (PMSI). In the above case, the equipment supplier sold the linear accelerator on credit to the company in administration and registered a PMSI to protect this security interest on the Personal Property Securities Register (PPSR).

The lesson for equipment suppliers is to ensure that all credit sales are registered as PMSIs on the PPSR and to carefully examine any landlord claim for title in an insolvency scenario. Maintaining communication and clarity between lessee and lessor can also help to avoid future disputes as to ownership of potential fixtures.

 

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