                                 CODE OF VIRGINIA

LESSOR&#8217;S AND LESSEE&#8217;S RIGHTS WHEN GOODS BECOME FIXTURES (§
8.2A-309)

1. In this section:

   a. Goods are &#8220;fixtures&#8221; when they become so related to particular
   real estate that an interest in them arises under real estate law;

   b. A &#8220;fixture filing&#8221; is the filing, in the office where a record
   of a mortgage on the real estate would be filed or recorded, of a financing
   statement covering goods that are or are to become fixtures and conforming to
   the requirements of subdivisions (a) and (b) of &#xA7; 8.9A-502;

   c. A lease is a &#8220;purchase money lease&#8221; 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 &#8220;construction mortgage&#8221; 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; and

   e. &#8220;Encumbrance&#8221; 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 title a lease may be of goods that are fixtures or may continue in
goods that become fixtures, but no lease exists under this title of ordinary
building materials incorporated into an improvement on land.

3. This title does not prevent creation of a lease of fixtures pursuant to 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:

   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; or

   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&#8217;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, whether or not perfected, has priority
over the conflicting interest of an encumbrancer or owner of the real estate if:

   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; or

   d. The lessee has a right to remove the goods as against the encumbrancer or
   owner. If the lessee&#8217;s right to remove terminates, the priority of the
   interest of the lessor continues for a reasonable time.

6. Notwithstanding subdivision (4) (a) of this section, but otherwise subject to
subsections (4) and (5) of this section, the interest of a lessor of fixtures,
including the lessor&#8217;s residual interest, is subordinate to the
conflicting interest of an encumbrancer 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&#8217;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&#8217;s
residual interest, has priority over all conflicting interests of all owners and
encumbrancers of the real estate, the lessor or the lessee may (i) on default,
expiration, termination, or cancellation of the lease agreement but subject to
the lease agreement and this title, or (ii) if necessary to enforce other rights
and remedies of the lessor or lessee under this title, 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 lessor or lessee 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&#8217;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 title on secured transactions (Title 8.9A).

HISTORY: 1991, c. 536; 2000, c. 1007.