Get Key Protections if Tenant Requests Landlord’s Lien Waiver
Tenants often seek financing to help them run their businesses, so you have probably gotten numerous requests from tenants for a “landlord’s lien waiver.” Without the lien waiver, a tenant’s lender may refuse to go through with the loan, or an equipment lessor may refuse to lease expensive equipment to the tenant. A lien waiver typically states that you agree to waive a valuable right—that is, the right to take possession of the tenant’s personal property if it doesn’t pay its rent. If you agree to a lien waiver and the tenant defaults on its loan or under its equipment lease, the lender or equipment lessor can take over the tenant’s personal property without fear that you’ll stop it from doing so or that you’ll claim that you have superior rights to that property.
Typically, a tenant will give you its lender’s or equipment lessor’s form of lien waiver to sign. But you should reject that form because it will probably give you few, if any, protections and could take away important rights that you’ll want to keep.
If you agree to sign a lien waiver it’s better to prepare your own form so that you can protect your interests. There are some protections you should consider. For example, don’t agree to waive your lien on the tenant’s personal property. Instead, agree only that you’ll “subordinate”—that is, make secondary—your lien to that of the tenant’s lender or equipment lessor. This way, you’ll still have the right to go after the tenant’s personal property if it doesn’t pay its rent. You’ll just have to wait in line behind the tenant’s lender or equipment lessor.
Additionally, don’t waive or subordinate your legal right to enforce a judgment against the tenant. For instance, if you sue the tenant and win, you should have primary access to the tenant’s personal property if it doesn’t pay you the awarded damages.
For a detailed checklist of important protections and a Model Agreement that you can adapt for your lien subordination agreement, see “How to Draft Owner-Friendly Lien Subordination Agreement,” available to subscribers here.