Pub. 6 2016 Issue 2

COUNSELOR’S CORNER Timing is Critical for Competing Liens BY LAURA SEVER BLANCO, GUST ROSENFELD PLC F I RST IS NOT ALWAYS FIRST. A “FIRST LIEN” MAY NOT LIVE UP TO ITS BILLING. FOR EXAMPLE, A LOAN SECURED WITH A PROPERLY perfected security interest in equip- ment under the Uniform Commercial Code (“UCC”) may or may not be prior to the lien of the landlord where the equipment is housed. Arizona’s landlord’s lien statute may prefer the landlord’s secured interest to that of the lender. As with so many things, priority may depend on timing – and location. Landlord’s Liens In many states, including Arizona, a landlord’s lien is a creature of statute. Arizona Revised Statutes § 33-362(A) provides in part: “The landlord shall have a lien on all property of his tenant not exempt by law, placed upon or used on the leased premises, until the rent is paid.” The lien is limited to the tenant’s property that is on the premises. Prop- erty of a tenant’s customer, or property used but not owned by the tenant, is not subject to a landlord’s lien. The statute is consistent with the common law. See, Bates & Springer, Inc. v. Friermood, 507 P.2d 668, 109 Ariz. 203 (1973). (Television sets that were originally owned by the tenant, but sold to a third party and then leased back to the tenant before the lease commenced were not subject to the landlord’s lien, even though the televi- sion sets were on the premises at the time the rent became delinquent). UCC Liens As a general rule, security interests under the UCC have priority accord- ing to the time they were properly perfected. The UCC expressly exempts landlord’s liens, except for agricul- tural crops. A.R.S. §47-9109(D)(1). Therefore, priority contests between competing UCC liens and landlord’s liens necessarily depend on the timing and nature of the competing liens. Priority Contests Timing is critical. If personal property is subject to a UCC security interest at the time it is brought onto the leased premises, the UCC lien will prime a landlord’s lien. In Ex-Cell-O Corpora- tion v. Lincor Properties of Arizona, 762 P.2d 594, 158 Ariz. 397 (App. 1988), after the tenant entered into a lease, it borrowed money to buy equipment for use on the leased premises. When the tenant defaulted, the landlord sought to enforce its landlord’s lien. The lender argued that the equipment brought onto the premises was already subject to a perfected – and prior – UCC security 4 www.azbankers.org