- When financing a borrower's acquisition of equipment, and taking security on that equipment, the following matters should be kept in mind:
(i) to obtain the highest possible priority for your security (which means it will have retroactive priority over most previous security interests), you must file your financing statement in the Personal Property Registry no later than 15 days after the day upon which the borrower acquires possession of the equipment;
(ii) If the equipment is "serial numbered goods" within the meaning of The Personal Property Security Act (Manitoba) (the "PPSA"), then in your financing statement, you have to include an accurate statement of the serial number (or numbers) together with statements pertaining to the make, model, manufacturing year and the "type" of equipment involved; and
(iii) If the equipment is "mobile equipment", then you must perfect (typically, register a financing statement in) the jurisdiction in which the borrower is "located". For an individual borrower, that would be the borrower's place of residence. For a corporate borrower, that would be the jurisdiction in which the borrower has its office, and if it has more than one office, then in the jurisdiction in which the borrower's chief executive office is located.
- For equipment that isn't "serial numbered goods", your financing statement should still include the serial number - if one is available - but it doesn't have to be included in the "serial numbered goods" portion of the financing statement. As with any secured collateral, your financing statement should describe the collateral in a way that enables third parties to - relatively easily - identify it, and, to be able to distinguish it from other equipment (or other collateral) which the borrower holds but which is not subject to your security.
- "Mobile collateral" is - obviously - motor vehicles. But it also includes less obvious "moveable" goods such as:
(i) outboard motors on motor boats;
(iii) certain kinds of trailers;
(iv) forklifts; and
(v) heavy construction equipment that is "mobile", even if it doesn't move very fast and only (typically) moves short distances within an area within which it is being used.
- Most farming equipment - even if it is "mobile" is not considered to be mobile equipment. However, the two main exceptions to this are:
(i) harvesting machines; and
- Where the equipment you are financing is to be incorporated into real estate and as such, the equipment, when so incorporated, would be considered to be a "fixture" within the meaning of the PPSA, additional steps should "usually") be taken. Generally, fixtures are any tangible goods which are built into, incorporated into or affixed into land and/buildings, excluding:
(i) building materials; and
(ii) elements or portions of a building or other improvement which, if removed, would adversely affect its structural integrity or the removal of which would expose the building to adverse effects of the elements.
- Where what you are financing is or is to become a fixture, then in addition to filing a financing statement in the Personal Property Registry, you should also file a "Notice" against the title to the underlying land which states your interest in fixtures/goods which are described in your registered financing statement. The priority you hold with respect to the affixed fixture depends on the alacrity with which you file your Notice against the title. In this regard:
(i) if your security interest attaches to the equipment before the equipment is affixed to the realty, then your security interest will hold priority over anyone with a competing interest in the land who has registered their claim or interest prior to the fixtures affixation date. However, a pre-existing registered mortgagee who makes an advance under its mortgage subsequent to when your financed equipment becomes a fixture may hold priority over your interest in the fixtures;
(ii) where your security interest does not attach to the equipment until after the equipment has become affixed to the realty, you will be subordinate to:
(A) all pre-existing real estate registered interests; and
(B) any subsequent arising real estate interest who registers its interest before you register your Notice against title.
- In my experience, where security is taken by a lender to finance a debtor's acquisition of equipment that becomes affixed to land, the required registrations - including registration of a Notice against the title to the underlying land - are not done until after the equipment has become affixed. Thus in most cases, in addition to registering against the underlying land's title, you should do a search of the title before advancing value so as to ensure that there are no pre-existing competing mortgages or other interests. Or if there are any of the same, you should not advance until you have postponements or consents to advance from the prior registered land interest holders.
- Where the debtor defaults and you wish to realize against your security, you are entitled to enter upon the land and remove the affixed equipment provided that you don't cause any damage in effecting the removal. You do have to provide prior notice to all interested parties. Anyone who has an interest ranking in priority to your interest in the affixed equipment is entitled to require you to put up security to cover any damage to the property you cause by removal.
- Where you are financing a debtor's acquisition of equipment which is not affixed - or to be affixed - to the realty, you should proceed in the ordinary course. However, if the debtor doesn't own the underlying land but is merely a tenant holding from somebody else, you should get some sort of a subordination/consent from the landlord to permit you to remove the goods and liquidate them for your own account, in particular, with reference to the landlord's right to levy distress against goods on the premises for rent arrears.
- If you are financing a tenant's "leasehold improvements" - which may or may not include fixtures - you should (again) obtain a postponement/consent from the landlord. However additionally, you should review the lease between the parties so as to determine what your rights are should you find yourself in a position where you wish to realize on your security. Matters of particular interest to consider in a lease in this context are:
(i) What does the lease say about the ownership of leasehold improvements (fixtures and non-fixtures) in the contexts of termination of the agreed to lease term by virtue of the tenant's default or the landlord's default under the lease?
(ii) Does the lease outright prohibit the taking of any security in the leasehold improvements?
(iii) What are the rights and obligations of the involved parties consequent upon damage or destruction to the property?
- If you are financing a tenant's leasehold improvements and the tenant has a "long-term" lease, it may be appropriate for you to take security against not only the leasehold improvements, but also - and perhaps in particular - against the tenant's leasehold interest. In other words, you want a mortgage of the borrower's leasehold interest. In that case you will definitely have to review the terms of the lease to see what - if anything - the lease says about granting of such security by the tenant. You have to consider carefully, keeping what's in and what's not in the lease - about what you would want to have happen where:
(i) the tenant defaults to the landlord and the landlord has the right to terminate the lease;
(ii) the tenant as your borrower defaults in the performance of its obligations owed to you and you wish to realize your security. This would no doubt mean your selling the balance of the term of the lease (and the right to hold and use the improvements you have financed) over the balance of the term, to a new lessee.
(iii) the tenant becomes bankrupt?