When financing the leasehold improvements of a tenant under a commercial lease, the Bank’s security interest must be protected against persons who already have or may later acquire interests in the real property where the leased space and improvements are located, as well as against other parties who seek to take a security interest in the borrower’s assets. The Bank’s security interest in fixtures must be protected against parties who may take a security interest in the borrower’s assets and against those who have or may acquire interests in the real estate on which the fixtures will be located. [UCC 9.334]
If the Bank perfects its security interest on fixtures by a fixture filing, then it is automatically protected against real estate interests created after the Bank’s perfection.
The Bank will also have priority over holders of prior real estate interests under certain circumstances. If the Bank’s new security interest is for purchase money and is perfected by a fixture filing before the goods become fixtures or within 20 days thereafter, then the Bank will have priority over any real estate interest which arose before the goods became fixtures (i.e., an existing mortgage on the property). [UCC 9.334]
CAUTION: Under the UCC, the fixture secured party must make sure that the debtor has an interest of record in or occupies the premises where the fixture has been or will be installed. The secured party will not be entitled to priority over real estate interests unless the borrower has an interest of record in that real estate, except under some special situations discussed below.