What
is a landlord’s lien?
It
is a security interest on a tenant’s personal property in favor of a
landlord under a business lease.
How
is it created?
Usually,
there is a provision in the written lease which creates a contractual security
interest on the tenant’s property in the leased space. The lien is usually
perfected by a UCC filing in the Secretary of State UCC Records.
If
there is no such lease provision, is the lender protected?
No.
Even without the contractual lien, the landlord is given a lien, the so-called
"statutory landlord’s lien" under Section 54.022 of the Texas
Property Code. The lien exists whether or not there is a written lease, and
is established at the time of occupancy. There must be an affirmative written
waiver of the statutory lien if the lender is to be in a first lien position.
How
does the lender learn of the existence of the landlord’s lien?
If
the lender intends to take a lien on the customer’s FF&E, accounts
receivable, or other personal property, the lender should obtain a UCC lien
search and also review the customer’s lease to determine whether a contractual
landlord’s lien was created and whether the statutory lien rights of
landlord were waived.
How
can the lender be protected?
By
doing the due diligence to verify if any liens encumber the bank’s future
collateral and by including a landlord’s subordination or lien waiver
in the loan document package. A condition of closing the loan should be landlord’s
execution of a lien subordination or waiver.
Which
is more appropriate, a lien waiver or subordination?
A
waiver extinguishes all rights of the landlord in the collateral. Typically,
a landlord will sign a subordination with conditions, but not a waiver.
What
conditions?
For
all practical purposes, if a landlord signs a subordination, he will be letting
the collateral go in the event of a default on the lender’s loan to
the tenant. The landlord would like a prompt, orderly removal of the collateral
from the space and for the lender to be insured and be liable for damage to
the leased space during the removal process. If the landlord modifies the
lien subordination or waiver, lender’s counsel should be consulted.