There is a great deal of confusion as to the term “fixtures” in the construction industry and even greater confusion as to what rights a contractor, subcontractor, or supplier has to the fixtures or non-fixtures that are incorporated into a construction project. Over the next few months, I am going to attempt to explain the difference between a fixture and a non-fixture and provide alternatives to the Texas’ mechanic’s lien process for securing the goods and services provided on a property.
“Fixtures” means goods that have become so related to particular real property that an interest in them arises under the real property law of the state in which the real property is situated. In other words, Fixtures are generally physically attached to the building. There are numerous examples of this on a construction project – carpet, tile, countertops, bathtubs, … This should not be confused with the term “removable.” See http://www.kmdalegal.com/construction-law/foreclosure-of-your-mechanics-lien/
Likewise, “Non-Fixtures” would be those goods which are made a part of a construction project but not permanently affixed as to become an actual part of the property. For example, furnishings, equipment such as sound systems, tv’s, refrigerators and light fixtures, etc.
You might wonder how this relates to you and how this helps you get paid. I am sure at this point you have either personally been burned or know someone who has been burned by filing a mechanic’s lien on the property only to have your lien “foreclosed out” by the bank leaving your remedies extremely limited. However, in Texas, there are various filings that you can file with the Secretary of State to secure your interest in the fixture or non-fixture you provide to a property. This is important to you because, in some situations, you can have priority over a bank that has provided the construction loan for the property thus securing your rights even through a foreclosure.
Now I want to go over how Security Interests in Non-Fixtures works. The Uniform Commercial Code Section (UCC) is the central filing office for certain financing statements and other documents provided for under the Uniform Commercial Code since 1966. Some of the main documents which are filed are financing statements and certain types of liens. Securing non-fixtures should be done through the filing of a financing statement with the secretary of state. The financing statement should state: the name and mailing address of the debtor; the name and mailing address of the secured party; an indication of the collateral covered. The authenticated security agreement itself may be filed as the financing statement if the parties so desire. “Authenticated” is defined as signed. The financing statement should be filed as soon as possible but certainly not later than 20 days after the first delivery of goods to the person with whom your contract is with.
I know what you are thinking. More paperwork? YES. With our whole country struggling financially, unfortunately, the primary way to protect yourself is through a paper trail. The good news is that a financing statement or security agreement are simple forms that you probably can have drawn up one time through an attorney. This does not have to be complicated but you do have to go through the process of having something customized to your type of business that you can repeatedly use for your various customers and clients.
Next month, I am going to discuss Security Interests in Fixtures and explain how these UCC filings can help you gain priority over other potential claimants