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Landlord Lien Rights on Tenant’s Personal Property

Landlord Lien Rights on Tenant’s Personal Property

There are three primary forms of security used for tenant’s payment of rent: a security deposit (in the form of cash or a letter of credit), a personal or corporate guaranty, and landlord lien rights on the tenant’s personal property located within the leased premises.  Most tenants incorrectly negotiate the landlord lien rights provisions in commercial leases.

Standard landlord form leases typically include some or all the following concepts: (1) representations and warranties from the tenant that it owns its personal property free and clear of all liens, (2) the tenant’s personal property is subject to a first position landlord lien that secures the tenant’s lease obligations, (3) the landlord shall have the right to deem any personal property left in the leased premises following termination of the lease as abandoned, (4) the landlord may retain possession of all abandoned personal property and dispose of such property at tenant’s expense, store such property at tenant’s expense, or retain such property without payment to tenant, and (5) the tenant may not remove certain personal property from the leased premises during the term of the lease without the consent of landlord.

If the parties negotiate that the tenant’s personal property will not be used as security, the most common mistake is that the tenant simply requests the deletion of the related provisions.  However, this only makes the lease silent regarding landlord lien rights and the use of personal property as security.  Under A.R.S. 33-362, the landlord has statutory lien rights.  So, if the lease is silent, the landlord still has the rights available under Arizona law.

If it is the intent of the parties that the security not include tenant’s personal property, the lease must include a waiver of the statutory lien rights.  Following is an  example provision: “Landlord waives any and all lien rights with respect to Tenant’s personal property, including statutory landlord lien rights under A.R.S. Section 33-362.”

If the landlord will not give a blanket waiver of its lien rights, the tenant may elect to negotiate that the landlord’s lien will not apply to certain property (for example, computers with confidential or business information).  Most often, the only items valuable to the landlord are items that can be used for future tenants or resold, such as office furniture, appliances and phone systems.

Alternatively, the tenant’s personal property may be subject to an equipment or other lease, or tenant may have obtained financing to purchase the personal property.  In those cases, the terms of the financing agreements or personal property leases may require the landlord to subordinate its landlord lien.  Following is a sample subordination provision: “Landlord agrees to subordinate its landlord lien rights with respect to personal property that is subject to financing and/ or a lease.”

Finally, a landlord willing to grant a waiver of its landlord lien rights should consider how the waiver will impact the treatment of abandoned personal property at the end of the lease.  At worst, the landlord could have asserted its statutory lien and disposed of the property according to the statutory process.  With a waiver, it is uncertain how long the landlord must store the property at tenant’s expense, with a slim chance of recovering the storage costs.  A landlord should consider a lien rights waiver period of ten (10) days following termination of the lease to allow the tenant to remove its personal property from the leased premises.  After the expiration of the waiver period, the statutory lien rights would be reinstated.

Prior to using any language or concepts from this blog entry, consult with an attorney.

Ryan Rosensteel is a real estate and construction attorney licensed in Arizona.  You can contact him at ryan.rosensteel@azbar.org.


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