KRS 355.9-407: Restrictions on creation or enforcement of security interest in leasehold

interest or in lessor's residual interest.

(1) Except as otherwise provided in subsection (2) of this section, a term in a lease

agreement is ineffective to the extent that it:

(a) Prohibits, restricts, or requires the consent of a party to the lease to the

assignment or transfer of, or the creation, attachment, perfection, or

enforcement of a security interest in, an interest of a party under the lease

contract or in the lessor's residual interest in the goods; or

(b) Provides that the assignment or transfer or the creation, attachment,

perfection, or enforcement of the security interest may give rise to a default,

breach, right of recoupment, claim, defense, termination, right of termination,

or remedy under the lease.

(2) Except as otherwise provided in KRS 355.2A -303(7), a term described in

subsection (1)(b) of this section is effective to the extent that there is:

(a) A transfer by the lessee of the lessee's right of possess ion or use of the goods

in violation of the term; or

(b) A delegation of a material performance of either party to the lease contract in

violation of the term.

(3) The creation, attachment, perfection, or enforcement of a security interest in the

lessor's interest under the lease contract or the lessor's residual interest in the goods

is not a transfer that materially impairs the lessee's prospect of obtaining return

performance or materially changes the duty of or materially increases the burden or

risk imposed on the lessee within the purview of KRS 355.2A -303(4) unless, and

then only to the extent that, enforcement actually results in a delegation of material

performance of the lessor.