84-2a-309. Lessor's and lessee's rights when goods become fixtures. (1) In this section:
(a) Goods are "fixtures" when they become so related to particular real estate that an interest in them arises under real estate law;
(b) a "fixture filing" is the filing, in the office where a record of a mortgage on the real estate would be filed or recorded, of a financing statement covering goods that are or are to become fixtures and conforming to the requirements of K.S.A. 2024 Supp. 84-9-502(a) and (b), and amendments thereto;
(c) a lease is a "purchase money lease" unless the lessee has possession or use of the goods or the right to possession or use of the goods before the lease agreement is enforceable;
(d) a mortgage is a "construction mortgage" to the extent it secures an obligation incurred for the construction of an improvement on land including the acquisition cost of the land, if the recorded writing so indicates; and
(e) "encumbrance" includes real estate mortgages and other liens on real estate and all other rights in real estate that are not ownership interests.
(2) Under this article a lease may be of goods that are fixtures or may continue in goods that become fixtures, but no lease exists under this article of ordinary building materials incorporated into an improvement on land.
(3) This article does not prevent creation of a lease of fixtures pursuant to real estate law.
(4) The perfected interest of a lessor of fixtures has priority over a conflicting interest of an encumbrancer or owner of the real estate if:
(a) The lease is a purchase money lease, the conflicting interest of the encumbrancer or owner arises before the goods become fixtures, the interest of the lessor is perfected by a fixture filing before the goods become fixtures or within 10 days thereafter, and the lessee has an interest of record in the real estate or is in possession of the real estate; or
(b) the interest of the lessor is perfected by a fixture filing before the interest of the encumbrancer or owner is of record, the lessor's interest has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner, and the lessee has an interest of record in the real estate or is in possession of the real estate.
(5) The interest of a lessor of fixtures, whether or not perfected, has priority over the conflicting interest of an encumbrancer or owner of the real estate if:
(a) The fixtures are readily removable factory or office machines, readily removable equipment that is not primarily used or leased for use in the operation of the real estate, or readily removable replacements of domestic appliances that are goods subject to a consumer lease, and before the goods become fixtures the lease contract is enforceable;
(b) the conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the lease contract is enforceable;
(c) the encumbrancer or owner has consented in writing to the lease or has disclaimed an interest in the goods as fixtures; or
(d) the lessee has a right to remove the goods as against the encumbrancer or owner. If the lessee's right to remove terminates, the priority of the interest of the lessor continues for a reasonable time.
(6) Notwithstanding subsection (4)(a) but otherwise subject to subsections (4) and (5), the interest of a lessor of fixtures, including the lessor's residual interest, is subordinate to the conflicting interest of an encumbrancer of the real estate under a construction mortgage recorded before the goods become fixtures if the goods become fixtures before the completion of the construction. To the extent given to refinance a construction mortgage, the conflicting interest of an encumbrancer of the real estate under a mortgage has this priority to the same extent as the encumbrancer of the real estate under the construction mortgage.
(7) In cases not within the preceding subsections, priority between the interest of a lessor of fixtures, including the lessor's residual interest, and the conflicting interest of an encumbrancer or owner of the real estate who is not the lessee is determined by the priority rules governing conflicting interests in real estate.
(8) If the interest of a lessor of fixtures, including the lessor's residual interest, has priority over all conflicting interests of all encumbrancers and owners of the real estate, the lessor or the lessee may (i) on default, expiration, termination or cancellation of the lease agreement but subject to the lease agreement and this article, or (ii) if necessary to enforce other rights and remedies of the lessor or lessee under this article, remove the goods from the real estate, free and clear of all conflicting interests of all encumbrancers and owners of the real estate, but the lessor or lessee must reimburse any encumbrancer or owner of the real estate who is not the lessee and who has not otherwise agreed for the cost of repair of any physical injury, but not for any diminution in value of the real estate caused by the absence of the goods removed or by any necessity of replacing them. A person entitled to reimbursement may refuse permission to remove until the party seeking removal gives adequate security for the performance of this obligation.
(9) Even though the lease agreement does not create a security interest, the interest of a lessor of fixtures, including the lessor's residual interest, is perfected by filing a financing statement as a fixture filing for leased goods that are or are to become fixtures in accordance with the relevant provisions of the article on secured transactions (article 9 of chapter 84 of the Kansas Statutes Annotated, and amendments thereto).
History: L. 1991, ch. 295, § 39; L. 2000, ch. 142, § 145; July 1, 2001.
KANSAS COMMENT, 1996
1. This section governs the lessor's and lessee's rights when goods become "fixtures"—i.e., so attached to real estate that "an interest in them arises under real estate law." The section is based on section 84-9-313, with some significant revisions. For general discussion of the statutory analogue, see 1996 Kansas Comments to 84-9-313.
2. Unlike the general position taken in Article 2A, which does not require lessors to make a public filing to protect their interest in the goods, this section generally requires lessors to make a fixture filing (see paragraph (1)(b)) that conforms to K.S.A. 84-9-402(5) to achieve priority over other interests. See also subsection (9) and Official Comment 6 to this section.
3. Subsection (4) sets out when a lessor of fixtures that makes a proper fixture filing has priority over a conflicting interest of an owner or encumbrancer of the real estate. First, the lessor generally has priority if its interest is perfected before the conflicting interest. This is the standard "first in time, first in right" approach. See William H. Lawrence & John H. Minan, The Law of Personal Property Leasing ¶ 9.02(3) (1993). The lessor must have priority over any predecessor of the owner or encumbrancer and the lessee must own or possess the real estate for this rule to apply. Second, the lessor has priority if the lease is a "purchase money lease," so long as the conflicting interest arose before the goods became fixtures, the lessor perfects its interest no later than ten days after the goods become fixtures, and the lessee owns or has possession of the real estate. A lease qualifies as a purchase money lease under section 84-2a-309(1)(c) unless the lessee has possession or the right to possession of the goods before the lease agreement is enforceable, such as in a sale-leaseback transaction. Subsection (4) omits section 84-9-313(4)(c) concerning readily removable equipment. Instead, that provision is moved to subsection (5), which gives the lessor priority even if it does not file.
4. Subsection (5) sets out four circumstances in which the lessor's interest—regardless of whether it is perfected—still has priority over a conflicting interest of an owner or encumbrancer of the real estate: (1) if the fixtures are specified types of readily removable equipment (other than equipment used primarily in the operation of the real estate, such as air conditioning or heating equipment); (2) the conflicting interest is a judicial lien on the real estate obtained after the lease became enforceable; (3) the owner or encumbrancer consents in writing or disclaims any interest in the fixtures; and (4) the lessee has the right to remove the goods as against the owner or encumbrancer. Subsection (6) states an exception only to the priority given to purchase money leases; lessors can still rely on the priority rules of paragraph (4)(b) and subsection (5). Under subsection (6), the lessor's interest is subordinate to a construction mortgage if the construction mortgage is recorded before the goods become fixtures and the goods become fixtures before the construction is completed.
5. If the previous subsections do not resolve the priority issue, subsection (7) provides a catch-all under which the priority rules governing conflicting interests in real estate control. Official Comment 5 points out that this subsection is more liberal than the statutory analogue, section 84-9-313(7), which automatically subordinates the security interest in the fixtures in such a case.
6. Subsection (8) states the rules for removal of fixtures from the real estate. It changes the statutory analogue, section 84-9-313(8), in several respects. If the lessor's interest has priority, under this subsection both the lessor and the lessee have a right to remove and the goods can be removed not only on default, but also when the lease expires, terminates, or is canceled, and as necessary to enforce the remedies under this Article. The removed goods are free and clear of all conflicting interests of owners and encumbrancers, although the lessor or lessee must reimburse them the cost of repairing any physical injury to the property caused by removal. The owner or encumbrancer may refuse permission to remove the goods if the removing party does not give security for the necessary reimbursement.
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