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Drawing the Line Between Real Property and Personal Property In the UCC
UCC §9-109 sets forth the scope of UCC Article 9. Under that section, "any transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract" is governed by Article 9, subject to certain exceptions. Included among those exceptions is any "creation or transfer of an interest in or lien on real property, including a lease or rents thereunder." UCC §9-109(d)(11). This exclusion is itself subject to an exception in the event of enforcement — that being as to security agreements that cover both personal and real property. UCC §9-604. The back-and-forth is certainly confusing, but what is clear is that it can be unclear exactly where the line between real property and personal property should be drawn.
This issue recently came before a judge in the bankruptcy case of the almost 200-year-old retailer Lord & Taylor (L&T). That case, In re Le Tote, 2020 WL 6875575 (Bankr. E.D. Va. Oct. 30, 2020), involved an attempt by a secured creditor to enforce payment obligations of L&T under a master lease agreement for 24 retail stores. U.S. Bankruptcy Judge Keith Phillips rejected that attempt, citing numerous reasons, but among them being that the plain language of §9-109 applied and the exception under §9-604 did not.
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