Exam 1: LDEV 651 - Rights-of-Way, Easements, Fixtures

Items That Are Usually Fixtures:

These are presumed to be part of the real property unless expressly excluded

• Built-in cabinets

• Central HVAC systems

• Plumbing and electrical wiring

• Elevators

• Built-in shelving

• Permanently installed security systems

Items That Usually Are NOT Fixtures:

• Freestanding appliances (refrigerators, washers, dryers)

• Office furniture

• Portable machinery

• Trade equipment

Because fixture disputes are common, Texas contracts and leases often include:

Contract and lease language controls over default fixture rules

• Fixture lists

• Exclusion schedules

Trade Fixtures:

A trade fixture is personal property installed by a tenant for use in the tenant’s trade or

business that remains the tenant’s property, even if attached to the real estate, [so long as it

can be removed without material injury to the premises]

• Texas law strongly favors allowing tenants to remove trade fixtures.

• Trade fixtures are the exception because Texas courts want to:

  • Encourage commerce and leasing

  • Avoid unjust enrichment of landlords

  • Protect tenant investment in business equipment

Test for Trade Fixtures:

• Texas courts apply the fixture test, but tilt it in favor of tenants when trade fixtures are involved, intent of the parties is most important

• When the item is used for a tenant’s business, intent is presumed to favor the tenant unless the lease says otherwise.

• This is the exception to attachment makes it a fixture

Timing Rules for Removal:

• Tenant must remove trade fixtures before lease termination

  • Exception: If lease or landlord conduct implies permission, removal may occur shortly after termination

• Failure to remove on time can convert trade fixtures into landlord property

• Lease Language Controls (Texas Is contract-driven)

Leasing Matters:

• Texas courts will enforce lease provisions that:

• Requires fixture to remain

• Define what is or is not a trade fixture

• Require restoration of premises

Examples of Trade Fixtures:

• Restaurant Equipment

• Walk-in freezer

• Commercial ovens

• Exhaust hoods bolted into walls

• Specialized wiring or plumbing serving tenant’s business

• Manufacturing machinery

• Commercial shelving

• Retail display racks

• Salon chairs bolted to the floor

• X-ray machines

• Built-in exam lighting

• Oilfield or Industrial Lease

• Compressors

• Pumps

• Control systems bolted to concrete pads

Summary - real property includes:

1. Land

2. Improvements affixed to land; and

3. Fixtures (once personal property, now treated as real property)

REAL PROPERTY (AND FIXTURES) CONVEY AUTOMATICALLY

PERSONAL PROPERTY DOES NOT CONVEY UNLESS SPECIFICALLY INCLUDED

Easement Rights:

• Right to use land for a specific purpose

• Examples:

  • Access easements

  • Utility easements (wet and dry)

  • Aerial easements

  • Express easements versus implied easements

Summary - What Can Be Given Away Separately in Texas?

• Surface estates

• Leasehold estates

• Mineral estates

• Executive rights

• Royalty interests

• Easements

• Development rights

Right of Exclusion / Control

• The right to keep others off the land

• Examples:

  • Fencing property

  • Trespass claims

• This is one of the strongest protected property rights

• Subject to easements, mineral dominance, condemnation, government right of access

What the UCC Governs (Uniform Commercial Code)

• The UCC governs personal property and fixtures

• Real estate involves both

What It Involves (UCC):

• Equipment

• Fixtures

• Rents

• Accounts

• Furniture, Fixtures and Equipment (FF&E)

• Oil & gas equipment

• Mezzanine loans (first lien loans and subordinate loans)

What Is a Security Interest?

• A creditor’s legal right in personal property or fixtures to secure repayment of a debt

• Must have attachment and perfection to enforce the UCC lien

Perfection – Determines Priority of Lien Over Other Claims

For fixtures - accomplished for fixtures by filing a UCC-1 Financing Statement in the county records where the real property is located (but confirm for states other than Texas)

After Acquired Property Clause

• Fixtures

  • May overlap with mortgage collateral

  • Risk of dual filings (SOS + county)

WHAT IS AN EASEMENT?

An easement is a nonpossessory interest in land that gives one party the right to use another party’s land for a specific purpose.

An easement is a property interest:

• Servient Estate - The land burdened by an easement

• Dominant Estate (for appurtenant easements) - The land benefitted easement

• Easement Holder - the holder of the easement right

• Easements are property interests and therefore require recording

• You want succession if it benefits your property - “running with the land”

• Can also be a contract document

TYPES OF EASEMENTS:

• Easement Appurtenant - An easement appurtenant is a legal right that allows one parcel of land to use or benefit from another parcel of land for a specific purpose; It is attached to the land itself.

• Easement in Gross - An easement in gross is a nonpossessory right to use another person’s land that benefits a person or entity, not a parcel of land; Unlike an easement appurtenant, there is no dominant estate

Easement Appurtenant:

An easement appurtenant is a legal right that allows one parcel of land to use

or benefit from another parcel of land for a specific purpose; It is attached to the land itself.

• Benefits a parcel of land

• Has both a dominant estate and servient estate

  • Dominant estate – The property that benefits from the easement.

  • Servient estate – The property that is burdened by (subject to) the easement.

• Should be made to “run with the land” so future owners are bound by it and can enjoy it

• Presumed to be appurtenant if ambiguous

• Cannot Be Separated From the land or sold independently

• Usually remains in effect unless legally terminated (e.g., by agreement, abandonment, merger, or court order).

• Can be created by:

  • Express grant (written agreement)

  • Implication (based on prior use)

  • Necessity (landlocked property)

  • Prescription (long-term continuous use)

• Examples:

  • Access Easement

  • Utility Easement

  • Shared Well or Septic System Easement

Easement in Gross:

An easement in gross is a nonpossessory right to use another person’s land

that benefits a person or entity, not a parcel of land; Unlike an easement appurtenant, there is no dominant estate

• Benefits a person or company, not a parcel

• No dominant estate

• Servient Estate → the land that is burdened

• Easement Holder → person or company benefitted

• Common for utilities, pipelines, railroads

• Commercial easements in gross are generally transferable.

• Does not automatically “Run with the Land”

  • Because there is no dominant estate, it does not automatically transfer with land ownership.

• Created by:

  • Express written grant (most common)

  • By prescription on occasion

  • By implication – rarely

• Example of easement in gross:

  • A utility company’s right to install power lines (benefits the company, not a specific parcel).

• Common in Utility Contexts

  • Electric lines

  • Pipelines

  • Fiber optic cables

  • Railroad corridors

• Common in Personal Access Right

  • A landowner grants a friend fishing access across their land.

METHOD OF CREATION

• Express Easement

• Implied Easements

Express Easement:

• Formation Requirements

• Because an easement is an interest in land:

  • Must satisfy Statute of Frauds

    • Must be in writing

    • Must sufficiently describe:

      • Servient estate

      • Dominant estate (if appurtenant)

      • Location of easement

      • Scope of use

      • Signed by grantor

      • Delivered

  • RECORD IT!!!!!!

  • Drafting Matters

    • Granting Clause

      • “Grantor hereby grants and conveys to Grantee, its successors and assigns…”

    • Purpose Clause

      • “…a perpetual non-exclusive easement for ingress and egress…”

    • Legal Description of servient property

      • Metes and bounds

      • Reference to recorded plat

    • LOCATION OF EASEMENT (avoid blanket easements!)

    • Width of easement

    • Maintenance

      • “Grantee shall maintain the easement area…”

    • Repair and Restoration

      • “Grantee shall restore the surface…”

    • Indemnity

      • “Grantee shall indemnify Grantor…”

    • Duration

      • Perpetual vs term easement

    • “RUNS WITH THE LAND….”

    • Assignment Clause

      • “…together with the right of assignment.”

Implied Easements:Easement by Prior Use (Implied from Existing Use)

An easement by prior use arises when land that was once under common ownership is divided, and a use that existed before the division is so apparent and necessary that the law assumes the parties intended it to continue - even though it was not written in the deed or an easement.

In Texas, courts recognize this type of implied easement when specific elements are met.

• Elements:

  • Unity of Ownership

    • Both the dominant and servient estates were once owned by the same person.

  • Use existed before severance

    • Before the property was divided, the owner used one part of the land to benefit another part.

  • Continuous Use

    • The use was not temporary or occasional.

  • Reasonable Necessity

    • The easement is reasonably necessary for the enjoyment of the dominant estate (not absolute necessity, just more than mere convenience).

  • Example:

    • Driveway Across Divided Property: An owner of a large property uses a gravel road across the property to access a barn. The owner sells the back portion of the property but says nothing about the road. If the road was visible and regularly used before the sale, the buyer may have an easement by prior use over the front parcel.

Implied Easements: Easement by Necessity

In Texas, an easement by necessity is an implied easement that arises when a landowner conveys part of their land in such a way that one parcel becomes landlocked, leaving it without access to a public road.

The law implies a right-of-way because public policy disfavors land being unusable.

It does not need to be written.

• Elements:

  • Common ownership of the property (Unity of ownership)

    • Both tracts were originally owned by the same person.

  • Severance of the property

    • The property was divided into two or more parcels.

    • Landlocked parcel created

  • Strict necessity at time of severance

    • The easement was strictly necessary (not merely convenient) when the property was divided.

    • There is no legal access to a public road—being inconvenient or more expensive is not enough.

    • Policy: Avoid land being unusable.

  • Example:

    • Landlocked Parcel:

      • A landowner sells the back 50 acres of a property but keeps the front 50 acres that touches the highway.

      • The back parcel has no road access except across the front parcel.

      • The buyer of the back parcel has an easement by necessity over the front parcel.

    • Important Texas Rules

      • The necessity must exist at the time of severance.

      • If another legal access later becomes available, the easement by necessity terminates.

      • It only lasts as long as the necessity exists.

Implied Easement: Easement by Prescription

An easement by prescription is created when someone uses another person’s land for a long period of time in a manner that is open, notorious, adverse, and continuous, without the owner’s permission.

It is similar to adverse possession, but instead of gaining ownership of the land, the person gains only a right to use it.

• Elements:

  • Open and notorious

    • The use was visible and obvious (not secret).

  • Adverse

    • The use was without the owner’s permission.

    • A license prevents an easement by prescription.

  • Continuous and uninterrupted

    • The use continued for the required statutory period.

  • Statutory period

    • In Texas, the required period is generally 10 years.

    • Result: Legal right to continue use.

  • Important Notes in Texas

    • If the owner gives permission, the use is not adverse and cannot become prescriptive.

    • The claimant must show use that is consistent and regular—not occasional.

    • The use must be of a definite path or specific area (for example, a particular roadway).

  • Example:

    • Long-Used Driveway:

      • A homeowner uses a visible driveway that crosses a neighbor’s land to access their garage for over 10 years without asking permission.

      • The neighbor never objects or stops the use.

      • The user may acquire a prescriptive easement to continue using that driveway.

    • What Does NOT Qualify:

      • Occasional use (once or twice a year).

      • Use with permission.

      • Use that is hidden or secret.

Implied Easement: Easement by Estoppel

An easement by estoppel arises when:

• A landowner represents (by words or conduct) that another person has or will have an easement (a promise, statement, or conduct indicating that an easement exists or will be granted).

• The other person reasonably relies on that representation (the claimant believed and relied on that representation), and

• The relying party changes position to their detriment (usually by spending money or making improvements based on that belief.

  • Because of that reliance, the landowner is “estopped” (legally prevented) from denying the easement—even if it was never put in writing.

  • Texas courts recognize this doctrine to prevent unfairness.

Texas Examples:

• A landowner tells a neighbor: “You can use my driveway anytime to reach your property.”

• Relying on that statement, the neighbor builds a house and garage that depend on that driveway for access.

• Later, the landowner tries to block access.

• A Texas court may find an easement by estoppel because the neighbor relied on the promise and spent money.

SCOPE OF EASEMENTS

• Scope is defined by:

  • Express language (if written)

  • Historical use (if implied)

• Expansion

  • Only within reasonable contemplation.

    • Permitted:

      • Modernizing use (e.g., fiber replacing copper lines)

      • Increased traffic consistent with original purpose

    • Not Permitted:

      • New type of use

      • Overburdening servient estate

  • Preventing Scope Expansion (Drafting Strategy)

    • Include:

      • Specific permitted uses

      • Prohibited uses

      • Maximum width

      • Vehicle limitations

      • Utility type limitations

      • Relocation rights

      • Capacity caps

    • Example: “This easement shall be limited solely to pedestrian ingress and egress.”

“RUNNING WITH THE LAND”

• An easement “runs with the land” when:

  • It is intended to run

  • It touches and concerns land

  • There is privity (varies by jurisdiction)

• Successors and Assigns (“Running with the land” protects successors and assigns).

  • If appurtenant, use language to ensure it follows the land.

  • If in gross, transferability depends on express language of easement document.

• Language to ensure running: “This easement shall run with the land and be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.”

TERMINATION OF EASEMENTS

Easements terminate by:

• Release

  • Express

  • Written release satisfying Statute of Frauds

• Merger

  • If one party acquires both dominant and servient estates

• Expiration

  • Expiration by the terms of the easement documents

• Abandonment

  • Requires:

    • Intent to abandon

    • Conduct demonstrating abandonment

    • Non-use alone is insufficient

  • Example:

    • Removal of utility lines

    • Express statements of relinquishment

• Estoppel

• Condemnation

• Termination or destruction of necessity

  • If alternate access is later created, easement by necessity may terminate.

GENERAL EASEMENT MATTERS

Overburdening

• Occurs when:

  • Additional parcels are attached to dominant estate

  • Traffic increases beyond reasonable expectation

    • Courts analyze intent at time of creation.

Relocation of Easement

• Traditional Rule: Cannot unilaterally relocate

• Modern Trend: Some jurisdictions allow reasonable relocation by servient owner if:

  • No impairment

  • No increased burden

  • No cost to holder

  • Best practice: Include relocation clause in easement document.

Exclusive vs Non-Exclusive Easements

• Exclusive = no one else may use

• Non-exclusive = shared

• RIGHT TO CROSS AND TO ALLOW ADDITIONAL EASEMENTS IN THE EASEMENT AREA IS IMPORTANT!!!!

Duration

• Perpetual – Continues in perpetuity

• Otherwise may have limited duration

Maintenance Obligations

CHECKLIST FOR PREPARING / REVIEWING EASEMENTS

• Is it appurtenant or in gross?

• Is it exclusive?

• What is the exact location?

• Is it perpetual or limited duration?

• Is relocation allowed?

• Who maintains?

• Insurance required?

• Indemnity?

• What uses are prohibited?

• Can it be expanded?

• Is it assignable?

• Does it run with the land?

TEMPORARY CONSTRUCTION EASEMENTS (TCES)

A Temporary Construction Easement (TCE) is a short-term, limited right to use another’s land for construction-related purposes.

It is typically used to facilitate building, repair, installation, or access activities that cannot be completed solely from the dominant parcel.

• Unlike permanent easements, TCEs are time-bound and purpose-specific. Granted for a limited duration

• Used for construction-related activities

• Usually automatically terminates according to its terms

• It may be Appurtenant or in gross (benefitting a contractor, developer, or utility)

  • Most TCEs are functionally in gross, especially when granted to utilities or contractors

Typical Uses of a Temporary Construction Easement (TCE)

• Staging and storage

• Equipment

• Materials

• Dumpsters

• Temporary offices

• Access

• Access road during construction

• Crane swing radius

• Emergency entry

• Utility installation

• Trenching

• Pipeline installation

• Electrical vault access

• Grading and slope work

• Temporary soil stabilization

• Drainage adjustments

• Excavation support

• Shoring

• Extending onto neighboring land

Temporary Construction Easement (TCE): Additional Information

Formation

• Must comply with Statute of Frauds

• “Grantor hereby grants to Grantee a temporary construction easement over a reasonable area adjacent to the Easement Area…”

Purpose Limitation

• “…for the sole purpose of staging equipment and constructing the improvements located on the Dominant Estate.”

Duration Clause

• Fixed date termination:

  • “This easement shall terminate on December 31, 2027.”

• Completion-based:

  • “This easement shall terminate upon substantial completion of the improvements…”

• Does not typically “run with the land.”

Restoration Obligation

• “Grantee shall restore the Easement Area to substantially the same condition…”

Indemnification and Insurance

• Indemnity provisions

• Required insurance limits

• Certificates of insurance

Automatic Termination Language

• “This Temporary Construction Easement shall automatically terminate without further action upon expiration of its term.”

Prevent Scope Expansion

• “Sole and exclusive purpose” language

• No right of relocation

• No right of assignment

• Explicit prohibition of permanent improvements

• Strict termination date

• No automatic extension

ABOVE-GROUND VS. BELOW-GROUND UTILITIES AND IMPROVEMENTS

Utility and improvement easements can burden land above the surface, on the surface, or below the surface.

The vertical dimension matters for:

• Scope

• Interference rights

• Development potential

• Airspace and subsurface rights

• Overburdening analysis

• Compensation and damages

Three-dimensional bundle:

• Airspace (Above Ground)

• Surface

• Subsurface

• Each can be burdened separately.

Air Space / Above-Ground Easements

• Electric transmission lines

• Cell towers

• Billboard structures

• Elevated pipelines

• Crane swing easements

• Aerial encroachments

• Legal Characteristics

  • More Visibly Burdensome

  • Affect aesthetics

  • Impact development rights

  • May reduce property value

  • Affect use and impose height limitations

  • “Grantor shall not construct improvements exceeding 20 feet in height within the Easement Area.”

• Airspace Rights

  • Often includes:

    • Access rights

    • Right to trim trees

    • Right to remove obstructions

    • Safety clearance zones

Subsurface / Below-Ground Easements

• Water lines

• Sewer lines

• Storm drainage

• Fiber optic cables

• Oil and gas pipelines

• Depth Matters

  • Horizontal location

  • Vertical depth

  • Maintenance access rights

  • “Grantee shall install utilities at a minimum depth of 36 inches below grade.”

• Other matters

  • Enter the surface

  • Excavation rights

  • Restoration obligations

  • Maintenance and repair

Easements In Development

In development, they are critical because land often cannot be built, sold, financed, or platted without them.

Access / Right-of-Way Easements

• Allow ingress and egress to a public road

• Common for landlocked tracts or shared driveways

• Frequently required by lenders and title companies

• Example: A recorded 30-foot access easement across a property or to reach a county road.

Utility Easements

• Allow utility providers to install and maintain:

  • Water lines

  • Sewer lines

  • Storm water lines

  • Detention ponds and outfalls

  • Electric lines

  • Gas lines

  • Fiber/telecom

  • Often shown on subdivision plats.

  • Important: Property owners usually cannot build permanent structures inside these easement areas.

Drainage Easements

• Allow stormwater to flow across property.

• Required for subdivision approval and flood control compliance.

• Common in new subdivisions.

Private Road Easements

• Used in rural developments and private subdivisions.

• Should include maintenance and insurance obligations.

Shared / Party Wall Easements

• Shared wall rights between attached structures (townhomes, duplexes).

Construction Easements

Access & Cross-Access Easements and Parking Easements

• Shopping centers

• Mixed-use projects

• Office parks

• Allows shared parking lots and drive aisles between parcels.

Reciprocal Easement Agreements (REAs)

• Very common in commercial development:

  • Shared parking

  • Cross access

  • Drainage

  • Signage rights

  • Maintenance obligations

  • Often recorded against all parcels in a shopping center.

Plats

• If the easement is on a plat it becomes binding once the plat is recorded.

Wet Utilities

Wet Utilities - involve water or wastewater systems (anything that carries liquid).

• Water (Potable Water)

  • Municipal water lines

  • Water mains

  • Fire hydrants

  • Water service lines to lots

  • Used for drinking water and fire protection

• Sanitary Sewer

  • Wastewater lines

  • Lift stations

  • Gravity sewer systems

  • Carries sewage from homes/buildings to treatment facilities.

• Storm Sewer

  • Storm sewer pipes

  • Inlets and culverts

  • Detention/retention ponds

  • Underground storm systems

  • Manages rainwater runoff.

• Who Controls Wet Utilities?

  • Cities

  • Municipal Utility districts (“MUD”)

  • Water authorities

• Wet utilities are typically the most expensive and heavily regulated part of land development.

Dry Utilities

Dry utilities do not involve water. They provide power, energy, or communications.

• Electric

  • Overhead or underground power lines

  • Transformers

  • Distribution lines

• Natural Gas

  • Gas lines to buildings

• Telecommunications

  • Fiber optic lines

  • Cable TV

  • Internet infrastructure

  • Phone lines

• Street Lighting

• Who Controls Dry Utilities?

  • Electric companies

  • Gas companies

  • Telecom providers

Why the Distinction Matters (Wet vs Dry) in Texas Development

Cost

• Wet utilities are usually installed by the developer and are very expensive

• Dry utilities are often installed by private utility companies (sometimes at lower direct cost to the developer).

Timing

• Wet utilities must usually be engineered and approved before platting.

• Dry utilities are coordinated later in the development process

What the UCC Governs

• The UCC governs personal property and fixtures

• Real estate involves both

What the UCC Involves

• Equipment

• Fixtures

• Rents

• Accounts

• Furniture, Fixtures and Equipment (FF&E)

• Oil & gas equipment

• Mezzanine loans (first lien loans and subordinate loans)

Structure of the Texas UCC

• The UCC is in the Texas Business & Commerce Code

• Key Articles for Real Estate Transactions

  • Article 1 - General Provisions / Definitions

  • Article 2 – Sale of Goods and Equipment

  • Article 3 - Negotiable instruments (how commercial paper is created, transferred and enforced

    • Example: Commercial paper is unsecured promissory notes, checks, CDs, cashier’s checks (if not backed by security)

  • Article 9 - Secured transactions – Deeds of Trust (and other security instruments) and Financing Statements secured by collateral

What Is a Security Interest?

A creditor’s legal right in personal property or fixtures to secure repayment of a debt

Must have attachment and perfection to enforce the UCC lien

• Three Requirements for Attachment:

  • Value (consideration) given

  • Debtor (Borrower) has rights in the collateral

  • Security agreement describing the collateral

Without attachment, there is no enforceable lien

• Perfection – Determines Priority of Lien Over Other Claims

  • Against third parties

    • For general personal property - accomplished for personal property by filing a UCC-1 Financing Statement at the Secretary of State where the borrower is domiciled

  • For fixtures - accomplished for fixtures by filing a UCC-1 Financing Statement in the county records where the real property is located (but confirm for states other than Texas)

    • Or can file a deed of trust or similar security instrument:

      • Must Indicate it is a fixture filing

      • Describe the real property

      • Name the record owner

  • As-extracted collateral in Texas (minerals – attached when extracted) – File at Texas SOS for entity and county records where the well or minerals are located

  • Timber to be cut in Texas – File in county records where located

UCC Documents

Security Agreement

• Creates the security interest

• Describes collateral

• Often embedded in:

  • Loan agreement

  • Assignment of Rents and Leases

  • Deed of Trust (or other security instrument)

UCC-1 Financing Statement

• Gives public, constructive notice of the secured party’s (usually a lender) interest

• Does not define the actual lien (the security agreement does)

  • Third parties only see the UCC-1

• Includes:

  • Debtor’s legal name (Must be careful)

  • Secured party name

  • Collateral description

    • Lenders want it as broad as possible

    • Borrowers want it as narrow as possible

• Common UCC Drafting & Filing Mistakes

  • Wrong debtor name (entity vs. assumed name)

  • Filing in county instead of SOS (or vice versa)

  • Forgetting fixture filing language

  • Overbroad collateral descriptions

  • Letting UCC-1 lapse (Texas has a 5-year duration)

  • Not coordinating deed of trust + UCC filings

  • Assuming title insurance covers UCC collateral (it does not)

UCC-3 Amendment

• Used to:

  • Continue a UCC-1

  • Assign a UCC-1

  • Amend a UCC-1

  • Terminate a UCC-1

• File UCC-3 within 6 months before expiration

• Termination

  • Required upon payoff

  • Failure to terminate can make lender liable for statutory damages

Classification of collateral determines:

• Priority

• Filing location

• Foreclosure rights

Same asset might yield different result depending on filing

First to file or perfect wins

Common Priority Conflicts

• Mortgage lender vs. fixture lender

• Purchase Money Security Interest (money loaned to buy the collateral) vs. blanket lien

  • PMSI has super-priority if:

    • Properly perfected

    • Timely filed

    • Examples:

      • Equipment

      • FF&E

      • Solar installations

• Landlord vs. Equipment Lender

UCC Risks and Issues to Watch as a Borrower

Overbroad Collateral Descriptions

• Texas UCC § 9.504 - Description must reasonably identify the collateral

• Can be generic - “All assets of the Debtor” and/or “All personal property of the Debtor”

• This is legal and very bad for borrowers.

After Acquired Property Clause

• “All assets now owned or hereafter acquired”

• Sweeps in assets acquired years later

• Captures:

  • Operating accounts

  • Future equipment

  • Development-phase assets

  • Leasehold interests (sometimes)

“Accounts & Deposit Accounts”

• Includes rents and cash flow

• Can trigger lender control issues for borrower

Fixtures

• May overlap with mortgage collateral

• Risk of dual filings (SOS + county)

Equity Interests

• Beware of UCC-1 against stock, partnership or membership interests

• Impacts mezzanine financing

Proceeds

• “Proceeds of proceeds” language

• Extremely expansive under Article 9

• Example: Inventory, to account, to cash, to new equipment

Borrower leverage is before filing, not after

Try to:

• Limit to property or project-specific assets

• Avoid blanket liens when possible

• Narrow the Collateral Description

• Match Filing to Security Agreement

  • Make sure UCC-1 is not broader than Security Agreement - “All Assets” vs. Limited Collateral Was Negotiated

• Negotiate exclusions for:

  • Excluded accounts

  • Excluded equity

  • Non-property or Non-project assets

  • Affiliate property

• Limit After-Acquired Property

• Control Fixture Filings - Require lender consent before county filings (Lenders rarely agree to this.)

Enforcement and Default

Remedies

• Repossession

• UCC foreclosure sale

  • Commercial Reasonableness

  • Notice

  • Timing

  • Method

  • Texas courts scrutinize UCC sales closely

• Judicial remedies