Restrictions on Creation or Enforcement of Security Interest in Leasehold Interest or in Lessor's Residual Interest

  1. Law
  2. Georgia Code
  3. Commercial Code
  4. Secured Transactions
  5. Rights of Third Parties
  6. Restrictions on Creation or Enforcement of Security Interest in Leasehold Interest or in Lessor's Residual Interest

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  1. Term restricting assignment generally ineffective. Except as otherwise provided in subsection (b) of this Code section, a term in a lease agreement is ineffective to the extent that it:
    1. Prohibits, restricts, or requires the consent of a party to the lease to the assignment, transfer, creation, attachment, perfection, or enforcement of a security interest in an interest of a party under the lease contract or in the lessor's residual interest in the goods; or
    2. Provides that the assignment, transfer, creation, attachment, perfection, or enforcement of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy under the lease.
  2. Effectiveness of certain terms. Except as otherwise provided in subsection (7) of Code Section 11-2A-303, a term described in paragraph (2) of subsection (a) of this Code section is effective to the extent that there is:
    1. A transfer by the lessee of the lessee's right of possession or use of the goods in violation of the term; or
    2. A delegation of a material performance of either party to the lease contract in violation of the term.
  3. Security interest not material impairment. The creation, attachment, perfection, or enforcement of a security interest in the lessor's interest under the lease contract or the lessor's residual interest in the goods is not a transfer that materially impairs the lessee's prospect of obtaining return performance or materially changes the duty of or materially increases the burden or risk imposed on the lessee within the purview of subsection (4) of Code Section 11-2A-303 unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the lessor.

(Code 1981, §11-9-407, enacted by Ga. L. 2001, p. 362, § 1.)

RESEARCH REFERENCES

U.L.A.

- Uniform Commercial Code (U.L.A.) § 9-407.


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