For landlords of commercial and industrial premises, a security deposit can provide valuable protection against unpaid rent, outgoings, make-good costs and other breaches of the lease.
But simply requiring a tenant to pay a security deposit does not necessarily give a landlord the strongest possible protection if the tenant later becomes insolvent.
One way landlords can strengthen their position is to include a charging clause in the lease which expressly grants the landlord a security interest in the security deposit and permits the landlord to register that interest on the Personal Property Securities Register (PPSR).
The PPSR is the national register of security interests in personal property. A properly created and registered security interest can provide important protection if a tenant becomes insolvent.
In an insolvency, the landlord may be competing with the tenant’s bank, financiers and other secured creditors. Priority between competing security interests can determine who gets paid first.
The PPSR explains that a written agreement alone may not provide complete protection. Registration can help establish the landlord’s priority position and ensure the insolvency practitioner is aware of the landlord’s security interest.
A landlord should not assume that simply registering a PPSR against a tenant will create a valid security interest.
There needs to be a valid security agreement supporting the registration. The PPSR specifically states that a security interest generally arises from an agreement that secures payment of a debt or performance of an obligation.
A well-drafted commercial lease can therefore include a charging clause under which the tenant:
- grants the landlord a security interest in the security deposit and any related rights;
- agrees that the security interest secures all of the tenant’s obligations under the lease;
- consents to the landlord registering the security interest on the PPSR; and
- agrees to do anything reasonably required to assist the landlord to maintain or perfect that security interest.
This gives the landlord a contractual foundation for taking the relevant PPSR steps.
If you or someone you know is the landlord of a Commerical/Industrial Premises that requires assistance with the drafting of their lease contact our team today on 4627 3333.
This article was published on 20/08/26 and the information is valid as at the date of publishing. This article is general in nature and is not and should not be considered or relied on as legal advice. Meehans Solicitors is not responsible in the event this information is relied upon by the reader in the absence of specific legal advice.
