§ 41-02.1-39 — (2A-309) Lessor's and lessee's rights when goods become fixtures

North Dakota § 41-02.1-39

• Jurisdiction: North Dakota
• Title 41: Uniform Commercial Code
• Ch. 41-02.1: Leases

Text

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 recorded, of a financing statement covering goods that are or are
to become fixtures and conforming to the requirements of subsections 1 and 2 of
section 41-09-73.
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.
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 chapter a lease may be of goods that are fixtures or may continue in goods
that become fixtures, but no lease exists under this chapter of ordinary building
materials incorporated into an improvement on land.
3. This chapter does not prevent creation of a lease of fixtures under 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 either of the following exists:
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 ten days thereafter, and the lessee has an interest of record in the real
estate or is in possession of the real estate.
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 has priority over the conflicting interest of an
encumbrancer or owner of the real estate if any of the following are met:
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.
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 subdivision a of subsection 4 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 encumbrance 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 owners and encumbrancers of the real estate, the
lessor or the lessee may on default, expiration, termination, or cancellation of the lease
agreement by the other party but subject to the provisions of the lease agreement and
this chapter, or if necessary to enforce other rights and remedies under this chapter of
the lessor or the lessee, 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 party
removing the goods 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 chapter on secured transactions
(chapter 41-09).