A security interest lien is a good way for landlords to secure interests in their commercial property. Whether a tenant has already defaulted on a lease or you simply want assurances of your ability to collect payments in the future, a security interest lien can be used to protect you if your tenant cannot or will not pay their rent. The Uniform Commercial Code (“UCC”) allows landlords to protect their property interests using a lien, and certain UCC sections outline the requirements and rights of security interest liens.

What is the UCC?

The Uniform Commercial Code, often referred to as the “UCC,” is a set of laws that regulates certain business activities, including sales of goods and secured transactions. By incorporating the UCC, Colorado embraces the UCC drafters’ intentions of standardizing interstate commerce for equal trade requirements.

For the purposes of this blog, the UCC provides a framework for landlords to secure an interest in their investment and establishes a process for seeking remedies when tenants breach a contract or default on payments.

What is a lien?

Generally speaking, a lien is a legal claim on an asset that allows the lien holder to access or repossess property if the owner defaults on payments. To this end, a landlord lien is a claim that landlords can place on their property to secure their interest in the property.

In some states, landlords have an automatic lien against a tenant’s personal property on the leased premises, but Colorado does not provide these automatic liens. In Colorado, if a landlord wants to attach a lien to a tenant’s personal property, inventory, equipment, or fixtures at the premises, then the landlord must follow the UCC’s guidelines to obtain a security interest through a lien.

How can I obtain a security interest lien?

Using the processes outlined in the UCC, a landlord must attach a lien to their property and perfect their interest through meeting certain filing requirements. Both of these processes are technical and have many codes that outline the steps and define the terms of art. The security interests created by landlord liens are strong legal interests, so the proper steps to attaching and perfecting an interest must be followed precisely for a landlord to enforce their rights.

What rights accompany a security interest lien?

Landlords can obtain a variety of rights from a security interest lien depending on their interest in the property, the amount of debt the tenant owes the landlord, and the property to which the lien is attached. For example, if the tenant is an entity, the landlord can attach an interest on collateral that the tenant owns, like inventory and equipment. In these instances, if a tenant defaults on payments, then the landlord can seize the property to which the security interest is attached.

To be clear, there are specific guidelines that must be followed to attach security interests to particular items, and there are equally specific guidelines for exercising the right to seize or take control of collateral property. However, if security interest liens are properly attached and perfected, they can be used very effectively to protect a landlord’s interests. For example, security liens can be used to seize and liquidate a tenant’s collateral to provide money when a tenant defaults.

Conclusion:

Security interest liens provide effective means for landlords to protect their interests in investment properties. By being aware of the legal concepts underlying security interest liens, you can lower your financial risk through properly obtaining a security interest lien. The Geraghty Law Office is well versed in the provisions of the Uniform Commercial Code. If you are a landlord seeking to protect interest in your real property, fill out an interest form today to see if GLO can help you.

GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation, and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific fee arrangements and signed engagement letters. GLO does not guarantee any results.