South Dakota Codified Laws
Chapter 02A - Leases
Section 57A-2A-309 - Lessor's and lessee's rights when goods become fixtures.

57A-2A-309. Lessor's and lessee's rights when goods become fixtures.
(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 mortgage on the real estate would be recorded, of a financing statement concerning goods that are or are to become fixtures and conforming to the requirements of §57A-9-502(a) and (b);
(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; and
(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 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, a fixture filing covering the fixtures is filed before the goods become fixtures or within twenty days thereafter, and the lessee has an interest of record in the real estate or is in possession of the real estate;
(b)A fixture filing covering the fixtures is filed 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;
(c)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;
(d)The conflicting interest is a lien on the real estate obtained by legal or equitable proceedings after the lease contract is enforceable;
(e)The encumbrancer or owner has consented in writing to the lease or has disclaimed an interest in the goods as fixtures; or
(f)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.
(5) Notwithstanding subsection (a) of subsection (4) of this section but otherwise subject to subsection (4), the interest of a lessor of fixtures 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.
(6) In cases not within the preceding subsections, priority between the interest of a lessor of fixtures 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.



(7) If the interest of a lessor has priority over all conflicting interests of all owners and encumbrancers of the real estate, the lessor or the lessee may (a) 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 (b) if necessary to enforce his other rights and remedies under this chapter, remove the goods from the real estate, free and clear of all conflicting interests of all owners and encumbrancers of the real estate, but he 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.

Source: SL 1989, ch 419, §1; SL 1990, ch 390, §12; SL 2000, ch 231, §10.

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