Printable Format84-2a-303. Alienability of party's interest under lease contract or of lessor's residual interest in goods; delegation of performance; transfer of rights. (1) As used in this section, "creation of a security interest" includes the sale of a lease contract that is subject to article 9, secured transactions, by reason of K.S.A. 2024 Supp. 84-9-109(a)(3) and amendments thereto.
(2) Except as provided in subsection 3 and K.S.A. 2024 Supp. 84-9-407 and amendments thereto, a provision in a lease agreement which (a) prohibits the voluntary or involuntary transfer, including a transfer by sale, sublease, creation or enforcement of a security interest, or attachment, levy, or other judicial process, of an interest of a party under the lease contract or of the lessor's residual interest in the goods, or (b) makes such a transfer an event of default, gives rise to the rights and remedies provided in subsection (4), but a transfer that is prohibited or is an event of default under the lease agreement is otherwise effective.
(3) A provision in a lease agreement which (a) prohibits a transfer of a right to damages for default with respect to the whole lease contract or of a right to payment arising out of the transferor's due performance of the transferor's entire obligation, or (b) makes such a transfer an event of default, is not enforceable, and such a transfer is not a transfer that materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on, the other party to the lease contract within the purview of subsection (4).
(4) Subject to subsection (3) and K.S.A. 2024 Supp. 84-9-407 and amendments thereto:
(a) If a transfer is made which is made an event of default under a lease agreement, the party to the lease contract not making the transfer, unless that party waives the default or otherwise agrees, has the rights and remedies described in K.S.A. 84-2a-501(2);
(b) if paragraph (a) is not applicable and if a transfer is made that (i) is prohibited under a lease agreement or (ii) materially impairs the prospect of obtaining return performance by, materially changes the duty of, or materially increases the burden or risk imposed on, the other party to the lease contract, unless the party not making the transfer agrees at any time to the transfer in the lease contract or otherwise, then, except as limited by contract, (A) the transferor is liable to the party not making the transfer for damages caused by the transfer to the extent that the damages could not reasonably be prevented by the party not making the transfer and (B) a court having jurisdiction may grant other appropriate relief, including cancellation of the lease contract or an injunction against the transfer.
(5) A transfer of "the lease" or of "all my rights under the lease," or a transfer in similar general terms, is a transfer of rights and, unless the language or the circumstances, as in a transfer for security, indicate the contrary, the transfer is a delegation of duties by the transferor to the transferee. Acceptance by the transferee constitutes a promise by the transferee to perform those duties. The promise is enforceable by either the transferor or the other party to the lease contract.
(6) Unless otherwise agreed by the lessor and the lessee, a delegation of performance does not relieve the transferor as against the other party of any duty to perform or of any liability for default.
(7) In a consumer lease, to prohibit the transfer of an interest of a party under the lease contract or to make a transfer an event of default, the language must be specific, by a writing and conspicuous.
History: L. 1991, ch. 295, § 33; L. 2000, ch. 142, § 143; July 1, 2001.
KANSAS COMMENT, 1996
1. This section addresses the transferability of the leasehold interest and the lessor's residual interest in the goods. It is based on sections 84-9-311 and 84-2-210, with substantial changes.
2. Subsection (2) states the general rule: that a provision prohibiting transfer of the leasehold interest or the lessor's residual interest, or making transfer an event of default, is ineffective — i.e., the transfer is effective notwithstanding any limitation in the lease contract. Such a transfer, however, gives rise to the rights and remedies set out in subsection (5). Moreover, exceptions to the general rule are contained in subsections (3) and (4). In a consumer lease, subsection (8) provides that language prohibiting transfer or making transfer an event of default must be specific, conspicuous, and in writing.
3. Under paragraph (5)(a), if the lease agreement makes transfer an event of default, the nontransferring party is entitled to invoke the rights and remedies under Article 2A as appropriate. Take, for example, the case of a lessee whose sublease of the goods constitutes a default under the lease contract. If the transfer substantially impairs the value of the lease contract to the lessor, the lessor is entitled to any of the remedies listed in section 84-2a-523(1) or (2), including the right to cancel the lease. See 84-2a-523(3)(a). If the transfer does not substantially impair the value of the lease contract to the lessor, the lessor nonetheless can recover the loss resulting in the ordinary course of events (84-2a-523(3)(b), (2)) and exercise any remedies provided in the lease, including cancellation if so provided. Thus, although under subsection (1) the transfer is effective despite a contract provision to the contrary, a lessor can nonetheless prevent the transfer from occurring by canceling the lease if the transfer takes place. See William H. Lawrence & John H. Minan, The Law of Personal Property Leasing¶ 8.02(2)(a)(ii) (1993).
4. Most lease contracts will make any breach of a lease covenant an event of default under the lease. As a result, paragraph (5)(b) will not often come into play. But if the lease does not make transfer an event of default, paragraph (5)(b) permits the nontransferring party to recover damages caused by the transfer and makes available, in an appropriate case, other relief including cancellation or an injunction against the transfer. This paragraph applies if the lease prohibits the transfer but does not make it an event of default or if the transfer has a materially adverse effect on the nontransferring party.
5. Subsection (3) generally excepts transfers that create security interests from the remedies available under subsection (5). In other words, a provision in a lease contract that prohibits the creation or enforcement of a security interest or makes it an event of default is unenforceable. This exception is subject to two separate limitations. First, this exception does not apply (i.e., a contract prohibition is enforceable) if the secured party actually takes possession of the goods. Since foreclosure may give the lessor the ability to cancel the lease and take back the goods, this limitation is an important one. Second, the exception for security interests does not apply if there is an actual delegation of a material performance by either party. That will not occur in the ordinary case, however. See Official Comment 2 to this section. The final sentence of this section makes clear that the transfer of a security interest in the lessor's interests does not have a materially adverse effect on the nontransferring party as a matter of law, unless there is an actual delegation of a material performance. Thus, paragraph (5)(b)(ii) does not apply to the transfer of a security interest.
6. Subsection (4) sets out the other exception to the remedies available under subsection (5) for transfers of the right to payment or the right to damages for default. In other words, a provision in a lease contract that prohibits the transfer of a right to payment or a right to damages is unenforceable. In addition, this subsection makes clear that such a transfer does not have a materially adverse effect on the nontransferring party; thus, paragraph (5)(b)(ii) does not apply. The exception in subsection (4) is applicable only if the right to payment is already due or will become due without further performance by the transferor, such as in maintaining the goods subject to the lease. For further explanation, see Official Comment 7 to this section.