Leasehold improvements of a tenant under a commercial lease will be either “fixtures” or “equipment” depending upon (i) the degree to which the improvements are attached to the leased premises and (ii) the intention of the landlord and tenant that the improvements are to remain personal property. Provisions of the lease that give the tenant a right to remove the improvements upon the termination of the lease in evidence that the parties to a lease intend the good to remain personal property.
Equipment is personal property but these goods can change from the category of personal property into that of “fixtures.” Goods become fixtures when they are so tied to particular real estate that the law considers them to be part of the real estate. [UCC 9.102(a)(41)]
Examples of items that could be fixtures are: equipment installed in a plant, central air conditioning systems, built-in file cabinets or appliances or shelving, hospital equipment, tenant trade fixtures, etc.
The UCC distinguishes between ordinary UCC filings made with the Office of the Secretary of State and “fixture filings” made in the Real Property Records in the county where the fixtures are located. [UCC 9.102(a)(40)]
If the collateral is equipment, a UCC-1 Financing Statement should be filed with the Office of the Secretary of State. If the borrower is (i) an individual whose principal residence is not in Texas or (ii) is a corporation, limited partnership, or limited liability company not formed under Texas law, Bank Counsel should be consulted.
To perfect a security interest in goods which are or will become fixtures Form UCC-1 must be filed in the Real Property Records in each county in which the fixtures are or will be attached to real estate. This must contain:
•A statement that the collateral consists of fixtures.
•A statement that the financing statement is to be filed as a fixture filling and that it is to be filed in the Real Property Records.
•A legal description of the real estate to which the fixtures are or will be affixed (a street address is not sufficient).
•The name of the record owner of the real estate.
Since goods above easily could become fixtures, it is advisable to file both a UCC-1 Financing Statement with the Office of the Secretary of State and a fixture filing.
Special rules apply to fixtures owned by a borrower which is a “utility.” Bank Counsel should be consulted in connection with a financing secured by utility fixtures.