It is generally understood that where a lender takes a security interest in present and after-acquired goods which are - or which may in the future become - affixed to real estate, and the goods are not what are defined as "building materials" in Section 1 of the Personal Property Security Act ("PPSA"), to establish and protect the lender's priority in such affixed goods, the lender should both register a financing statement (describing the affected collateral) in the Personal Property Registry and additionally file a PPSA (Fixtures) Notice against the title to the relevant realty. This is prudent - and I believe the normal - practice for situations where lenders are taking both a real property mortgage and a personal property security agreement from the debtor. The rational for registering both a financing statement in the Personal Property Registry and a fixtures notice against the title to the relevant realty was explained in the Law Society of Manitoba publication “Highlights of the New Personal Property Security Act” published October 26, 1999. The publication states that “There are special filing and priority rules regarding fixtures that will be covered later in this paper. Those provisions act to reverse the common law rule that goods affixed to land become real property and are governed by real property laws.” The paper goes on to state that “Due to the fixtures priority rules in the PPSA possibly dealing with claims of mortgagees of the land, there is a potential problem due to the PPSA priority not meshing with the priority rules under other legislation affecting competing land claims”. The footnote for that statement references The Real Property Act and The Mortgage Act of Manitoba. A review of the following provisions of the MPPSA supports this position:
(a) Section 1 which contains definitions of "fixture", "goods", "personal property", "collateral" and "security interests";
(b) Section 3(1)(a) which spells out what the PPSA applies to;
(c) Section 36 which mandates that a secured creditor should register a PPSA (Fixtures) Notice to establish and maintain the creditor's priority with respect to fixtures; and
(d) Section 69(2), which, in effect, provides that where there is a conflict between the PPSA and any other provincial legislation (other than consumer protection type legislation), the conflict is to be resolved in favour of the PPSA.
In other words, by virtue ofManitobahaving codified the law as it relates to the perfection of security interests in fixtures, one can no longer rely upon the common law rule that registration of a real property mortgage automatically attaches to goods that are, or in the future may become, fixtures.
For the reasons outlined above, where the lender is taking only a personal property security agreement which extends or could extend to fixtures, the lender should also register both a financing statement in the Personal Property Registry and a PPSA (Fixtures) Notice against the relevant realty. But what about the situation where the lender takes only a real property mortgage and not a personal property security agreement? On the basis of the general (or "common" law), one would reasonably expect that the mortgage - unless by its terms it expressly excluded affixed goods - would "automatically" include goods which are (or in the future become) fixtures. Following this line of reasoning, one would expect that upon due registration of the mortgage, it should not be necessary to do any further registrations. However it is this writer's view that counsel should in fact go further and file both a financing statement in the Personal Property Registry (which describes the present and after-acquired goods affixed/to be affixed to the subject realty), plus, based on such Personal Property Registry registration, additionally register a PPSA (Fixtures) Notice against the title(s) to the subject realty.
Frankly, this situation calls out for reform, and it would behoove the provincial government to amend one or both of the PPSA and the Real Property Act to make it clear that due registration of a real property mortgage which does not specifically exclude present and/or after-acquired goods affixed/to be affixed to the mortgaged realty, should be sufficient to establish and maintain the mortgagee's security priority in fixtures. As to what that priority should be, the writer believes that once a real property mortgage has been duly registered, that should establish (subject to Section 17 of the Manitoba Mortgage Act), the mortgagee's priority for the mortgage's charge against both the real estate other than fixtures and for fixtures. That priority should apply to goods which were already affixed to the realty when the mortgage was registered. As to goods which become affixed after the mortgage has been registered, the mortgage should also have priority over same, subject however to "super priority" rights which should be given to purchase money financiers.