by Trent Appleby
Upon a tenant’s default for failure to pay rent, the typical lease agreement permits the landlord to either: (1) terminate the lease and repossess the leased premises, or (2) terminate the tenant’s right of possession of the leased premises without terminating the lease. In both scenarios, the landlord may enter the leased premises and re-key the locks, thereby excluding the tenant from the leased premises. The question then arises: what does the landlord do with all of the tenant’s property at the leased premises?
Lien types and UCC sales
Many leases provide the landlord an express contractual lien and security interest in a tenant’s personal property located at the leased premises. The lease itself acts as the security agreement creating the lien. Landlords must be sure to properly perfect the lien by filing a financing statement commonly known as a “UCC-1” with the Secretary of State’s office. If a tenant defaults on a lease, the landlord may then remove the tenant’s personal property (and recover money owed by the tenant to the landlord) through a UCC sale. Article 9 of the Uniform Commercial Code (UCC) provides a landlord with the right to sell, lease or otherwise dispose of the tenant’s property by public or private sale. Of course, the landlord is not at liberty to immediately sell the tenant’s property. Important steps must be taken prior to a UCC sale and counsel should be consulted to ensure compliance with Texas law.
The Texas Property Code also provides a landlord with a preference lien on the property of a commercial tenant as a matter of law. Here, there is no specific language required in the lease and the landlord is not required to file a UCC-1 financing statement. Importantly, however, if rent for a commercial property is more than six months overdue, then the landlord must file a verified lien statement with the county clerk where the premises is located; otherwise the lien becomes unenforceable. The statutory lien exists while the tenant occupies the premises and for a period of one month after the tenant abandons the building. The landlord must file a lawsuit to foreclose on the statutory lien and seek collection of outstanding rent due to the landlord within said one-month period.
Take inventory and follow the proper legal process
It is important for a landlord to take inventory of all personal property within the leased premises and determine if the property’s value outweighs the time, effort, and expenses associated with a sale of the property. The tenant – anticipating its default under the lease – may have already removed all of the valuable property from the premises and simply left behind property with little to no value. However, again, in such instances, the landlord is not at liberty to simply dispose of the tenant’s property. It is important landlords follow the proper legal process in removing and disposing of the former tenant’s property. Chapter 24 of the Texas Property Code sets forth the legal process by which a landlord may remove and dispose of the tenant’s property in cases in which the landlord simply wants to dispose of the former tenant’s property and quickly find a new tenant to occupy the premises. Again, important steps must be undertaken by the landlord and counsel should be consulted to ensure compliance with Texas law.
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About Trent Appleby
Trent Appleby focuses his practice on commercial and corporate transactions, real estate transactions, and corporate formation and governance matters. He also has experience in litigation, with an emphasis on commercial and residential construction litigation.Learn more about Trent…