Can You Lien a Commercial Tenant’s Property?

By Mary J. Drury , Esq.

Is a Landlord able to lien a commercial tenant's property as security for tenant's performance under a lease? Yes, if the Landlord has a consensual lien.

Consensual Liens--In General

A Landlord may bargain with a commercial tenant to grant it a consensual lien (through a lease that also provides for some form of distraint over tenant's personal property). The Uniform Commercial Code (“UCC”) (which is found in Chapter 104 of the Nevada Revised Statutes) expressly governs all consensual security interests, including contractual Landlord liens. A Landlord desiring priority under a contractual lien must therefore file as a normal UCC creditor, and priority is then controlled by Article 9 of the UCC's “first to file”, with the exception of purchase money lenders (persons who supply goods and financing for those same goods). Therefore, in order for a Landlord to have a consensual lien, a UCC-1 Financing Statement would need to be filed concurrent with the execution of a lease that includes language in which a tenant grants a security interest to a Landlord with the right to distrain tenant's personal property.

Non-Consensual Liens--In General

Where a tenant will not consent to a lien, a Landlord may secure a lien on the tenant's property through operation of common law distraint. As such liens are non-consensual, they are not covered under the UCC. Moreover, because priority of the lien is established through the Landlord-tenant relationship, no lien arises until the Landlord actually seizes the tenant's property. Courts have used different approaches when deciding priorities between non-consensual distraint liens and consensual UCC security interests. Nevada has not decided on an approach, but in general, might apply the “first in time” priority rule. Using the “first in time” method, a Landlord would generally lose because their possessory lien does not come into existence until after distraint of tenant's personal property. Therefore, a Landlord acting under a non-consensual lien can (nearly) never win a UCC “first in time” priority-based battle.

Nevada Law

Nevada law is less than clear on the overall subject of whether non-consensual Landlord liens are permitted or enforced. Many states have enacted statutes to either permit or deny distraint. N.R.S. 118A.520 abolished the common law right of distraint in residential leases. However, a bankruptcy case from 1981 in the District of Nevada states that the right of distraint remains part of the common law of Nevada as to commercial leases. This case has not been cited by any other Nevada courts and there are no other Nevada cases on the subject. Other states have suggested that such a lien might only be proper after full compliance with procedures for unlawful detainer, but again, in Nevada, we have no guidance.

Summary

Therefore, while it appears that there is some argument for Landlord's right to distrain Tenant's property, it is not to say that a lawsuit will not follow in order to prove such rights, or that, given the scarcity of Nevada law on the subject, that Landlord would ultimately prevail. The costs of such a lawsuit might far outweigh the value of Tenant's property.

Mary J. Drury, Esq. is an attorney with the Las Vegas law firm of Marquis & Aurbach. She can be reached at (702) 382-0711 or visit the firm's web site at www.marquisaurbach.com .