KRS 355.2A-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 KRS 355.9-502(1) and (2);

(c) A lease is a "purchase money lease" unless the lessee has possession or use of

the goods o r 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 re al 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 ari ses before the goods become fixtures, the interest

of the lessor is perfected by a fixture filing before the goods become fixtures

or within ten (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 g oods subject to a consumer lease, and before the goods

become fixtures the lease contract is enforceable; or

(b) The conflicting interest is a lien on the real estate obtained by legal or

equitable proceedings after the lease contract is enforceable; or

(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 construc tion 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, p riority 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 owners and encumbrancers of the real

estate, the lessor or the lessee may:

(a) On default, expiration, termination, or cancellation of the lease agreement but

subject to the lease agreement and this article; or

(b) 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 owners and encumbrancers 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 o f 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 remov al 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).