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Wednesday, May 18, 2005
FL Receivables Trust 2002-A v. Arizona Mills, L.L.C.: A Unanimous Division Panel Identifies Circumstances in Which a Landlord's Interest in Tenant's Property is Subordinate to the Lender's Interest.
Arizona Mills, a landlord, and its tenant executed an amendment to a written lease in order to permit tenant to secure additional financing for improvements, furniture, fixtures and equipment. The amendment subordinated all but landlord's interest in the land itself to the lender's lien. When the tenant defaulted under the lease, the lender sued to determine its rights in the real property, including the fixtures and the building. The superior court ruled in favor of landlord, determining that although it had consented to the tenant's grant of a lien on the tenant's interest in the lease, leasehold improvements and furniture, fixtures and equipment and subordinated its interest in tenant's property located on the premises, the landlord gave no consideration for the subordination. Moreover, when the tenant defaulted, the landlord acquired fee simple title to improvements to the property, including the building.
The Trust appealed and the Court of Appeals reversed. Assuming that both the landlord and lender have an interest in the property when the tenant defaulted, the dispositive question is whose right is superior? Under the UCC, a security interest is upheld against an ownership interest if either the owner consents to the creation of the security interest or the owner has given the right to remove the goods to the debtor. A.R.S. Sec. 47-9334. Even when a security interest had not been filed and therefore remains unperfected, a security interest in fixtures will prevail over an ownership interest if either condition is met. This provision applies to security interest's in a tenant's fixtures, and is true regardless of whether the landlord gave consideration. Thus, because the landlord consented to subordinate its interest and the lease gave the tenant the right to remove the "building and all fixtures" from the premises, the lender's security interest is superior to the landlord's ownership interest. The lender's security interest continues for a reasonable time after the tenant's right to remove the property (as against the landlord) terminates. See A.R.S. Sec. 47-9334(G).
Judge Lankford authored the opinion in which Presiding Judge Portley and Judge Hall concurred.
Arizona Mills, a landlord, and its tenant executed an amendment to a written lease in order to permit tenant to secure additional financing for improvements, furniture, fixtures and equipment. The amendment subordinated all but landlord's interest in the land itself to the lender's lien. When the tenant defaulted under the lease, the lender sued to determine its rights in the real property, including the fixtures and the building. The superior court ruled in favor of landlord, determining that although it had consented to the tenant's grant of a lien on the tenant's interest in the lease, leasehold improvements and furniture, fixtures and equipment and subordinated its interest in tenant's property located on the premises, the landlord gave no consideration for the subordination. Moreover, when the tenant defaulted, the landlord acquired fee simple title to improvements to the property, including the building.
The Trust appealed and the Court of Appeals reversed. Assuming that both the landlord and lender have an interest in the property when the tenant defaulted, the dispositive question is whose right is superior? Under the UCC, a security interest is upheld against an ownership interest if either the owner consents to the creation of the security interest or the owner has given the right to remove the goods to the debtor. A.R.S. Sec. 47-9334. Even when a security interest had not been filed and therefore remains unperfected, a security interest in fixtures will prevail over an ownership interest if either condition is met. This provision applies to security interest's in a tenant's fixtures, and is true regardless of whether the landlord gave consideration. Thus, because the landlord consented to subordinate its interest and the lease gave the tenant the right to remove the "building and all fixtures" from the premises, the lender's security interest is superior to the landlord's ownership interest. The lender's security interest continues for a reasonable time after the tenant's right to remove the property (as against the landlord) terminates. See A.R.S. Sec. 47-9334(G).
Judge Lankford authored the opinion in which Presiding Judge Portley and Judge Hall concurred.
Posted date: Wed, May 18, 2005
