Lien

Hello landlords and tenants. I’m going to discuss “liens” and what they mean for commercial real estate leases.  I’m Jenna Zebrowski, the attorney behind LawByJZ.com.  A lien means someone besides the owner of the property has a claim to the property. An example would be an auto loan or a mortgage. 

In a commercial lease, the landlord wants to make sure that the tenant will pay rent, so basically the stuff inside of the leased space is used as collateral. In fact, in Texas, did you know that the landlord has a statutory lien on all of the equipment in the tenant’s space?  And if you have a lender for the equipment, they probably want a lien as well.  You want to make sure you’re not violating the terms of the lease before you even open your doors to your customers!

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Commercial Real Estate Case Study

Lien: Security for a Loan

Chantel was in a tough situation. Chantel had worked very hard and saved for a very long time and was finally able to realize a long-cherished dream of opening a restaurant using her family’s recipes. She had just come through a terrible divorce and the death of her beloved mother, so there was a lot she was working through and her credit wasn’t the greatest, but she was determined to succeed.

She bought all of her kitchen equipment, which drained her savings but worked best for her credit situation.  The landlord wanted her restaurant in his building but was also hesitant to lease to a tenant that had a new concept with no history and also no credit.  He needed some certainty that she would be able to pay the rent and stay in business.  

Chantel’s attorney worked with the landlord and they came up with a solution: the landlord would have a lien on the kitchen equipment Chantel owned. She would still be the owner and be able to use it, but if she didn’t pay her rent debt to the landlord, then the landlord would have the ability to seize the kitchen equipment and take ownership in satisfaction of the debt.  Then he could sell it or let a replacement tenant use the equipment. 

It was a good arrangement- the landlord had the security he needed for Chantel’s debt, and Chantel didn’t have to worry about her credit score or finding more money.  Her restaurant is still profitable and she’s never missed a rent payment yet!