Construction & Real Estate

Is your tenant bond secure?

It is important for Landlords to know how to best protect their interests, particularly when it comes to the options of cash security bonds or bank guarantees.

Where a tenant provides a cash security bond to secure its obligations under a lease, this creates a "security interest" in favour of the Landlord under the Personal Property Securities Act 2009. Landlords must register their interest on the Personal Property Securities Register (the "PPSR") to properly perfect this security interest. Failing to do so will run the risk of that interest being defeated by a liquidator in the winding up of the tenant, and the cash bond being lost by the landlord.

Without the protection of a registered security interest on the PPSR, a Landlord holds no better position than any other unsecured creditor, and any claim made by the Landlord on a cash bond may amount to a voidable transaction and be claimed by the liquidator in the insolvency of the tenant.

It is therefore important for Landlords to:

1. Request a bank guarantee as this is generally the preferred form of security under a lease.
2. However, where a cash bond is held, the Landlord should register their interest, within the prescribed time, on the PPSR to perfect their interest over the bond.