Robert Mitchell
Please note that, while this article accurately describes applicable law on the subject covered at the time of its writing, the law continues to develop with the passage of time. Accordingly, before relying upon this article, care should be taken to verify that the law described herein has not changed.
Arizona law allows a landlord in a commercial lease to assert a landlord’s lien over a tenant’s personal property, furniture, and inventory in a leased premises.
A typical lease provision providing for a landlord’s lien is as follows:
Landlord’s Lien/Security lnterest. Tenant hereby grants Landlord a security interest, and this Lease constitutes a security agreement, within the meaning of and pursuant to the Uniform Commercial Code of the state in which the Premises are situated as to all of Tenant’s property situated in, or upon, or used in connection with the Premises (except merchandise sold in the ordinary course of business)(collectively, the “Collateral”) as security for all of Tenant’s obligations hereunder, including without limitation, the obligation to pay rent. Such personalty thus encumbered includes specifically all trade and other fixtures for the purpose of this Section and inventory, equipment, contract rights, accounts receivable and the proceeds thereof. In order to perfect such security interest, Tenant hereby acknowledges that Landlord has the right to file UCC financing statements at Tenant’s expense at the applicable state and county Uniform Commercial Code filing offices. Tenant further agrees to execute such other financing statements as reasonably requested by Landlord to further secure Landlord’s interest under this Section as often as Landlord in its discretion shall require; and Tenant hereby irrevocably appoints Landlord its agent for the purpose of executing and filing such financing statements on Tenant’s behalf as Landlord shall deem necessary.
Arizona law also provides a landlord with a statutory based lien in a commercial lease. A.R.S. § 33-362 provides: “The landlord shall have a lien on all property of his tenant not exempt by law, placed upon or used on the leased premises, until the rent is paid. The lien shall not secure the payment of rent accruing after the death or bankruptcy of the lessee, or after an assignment for the benefit of the lessee’s creditors.” Thus, even if a commercial lease does not include a landlord’s lien provision, Arizona law provides protection to commercial landlords with respect to rent accrued prior to bankruptcy of death of a tenant.
As a practical matter, a landlord’s lien attaches “at the commencement of the [lease] term or when the property is first brought on the leased premises.” Ex-Cell-O Corp. v. Lincor Props. of Arizona, 158 Ariz. 307, 309 (Ct. App. 1988). Priority depends on when the tenant brought the collateral onto the premises.
Even though Arizona law provides a statutory lien to commercial landlords, there are important differences in the statutory based lien and ones arising as a matter of contract (i.e., contained in the lease itself).
First, if a tenant files for bankruptcy, the Bankruptcy Code authorizes a trustee to “avoid the fixing of a statutory lien on property of the debtor” to the extent the lien “is for rent.” 11 U.S.C. § 545. Accordingly, if a landlord seeks to enforce a statutory landlord’s lien under A.R.S. § 33-362, the bankruptcy trustee may avoid that lien. The trustee, however, cannot avoid a contractual lien.
Another potential issue arises if a third-party creditor obtains a security interest in the tenant’s personal property and property located within the leased premises and then perfects the security interest by filing a UCC financing statement with the applicable governmental authority. If the landlord did not perfect its contractual landlord lien by perfecting it with a UCC financing statement filing, the third-party creditor’s security interest will take priority over the landlord’s contractual lien. U. S. (Treasury Dep’t, Internal Revenue Serv.) v. Globe Corp., 113 Ariz. 44, 50 (1976) (finding that contractual landlord’s lien are not excluded from the filing requirements of the Uniform Commercial Code.”). Pursuant to A.R.S. § 47-9322(A)(1), conflicting perfected security interest “rank according to priority in time of filing or perfection.”
If a lender perfected a security interest over personal property before it arrived on the premises, the lender would have a more senior lien. Id. Conversely, if a lender perfected its interest after the Tenant brought the personal property onto the Premises, then the Landlord would have a more senior lien.
In conclusion, a commercial landlord in Arizona should always include a contractual landlord’s lien in a lease and also should perfect such lien by doing a UCC financing statement at the commencement of the lease. Doing so will in many situations protect the landlord from another lien becoming superior to the landlord’s lien contained in the lease. Such a contractual lien will also not be voidable by a trustee in bankruptcy like a statutory lien claim.
Should you have questions or concerns about your lien rights against a commercial tenant, please reach out to Robert Mitchell to discuss. Robert has more than 35 years of commercial lease litigation experience, and can help you protect your rights as a commercial landlord.