Pub. 6 2016 Issue 3

Zia Trust, Inc. The Advisors’ Trust Company ®  No in-house asset management - we use your clients investment advisor  13 trust officers, including J.D.s, CFP ® and CTFA ® practitioners  Complex trusts over $100,000,000 – to trusts under $1,000,000, and everything in between  Old fashioned “face to face” service. We’re accessible!  Closely held business trusts, specialty assets, court settlements, conservatorships Offering Caring and Competent Trust Administration in Arizona Kathy Moriarity 602.633.7999 www.ziatrust.com 11811 N Tatum Blvd Suite 1062 Phoenix, Arizona 85028 Corporation v. Lincor Properties of Ari- zona, 762 P.2d 594, 158 Ariz. 397 (App. 1988), after the tenant entered into a lease, it borrowed money to buy equip- ment 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 interest. The Arizona Court of Appeals agreed and held personal property brought onto the leased prem- ises is subject to the landlord’s lien, but that the landlord’s lien is subordinate to a prior lien properly perfected under the UCC. The court reasoned that the purchase money loan made it possible for the tenant to acquire the equipment. Without the purchase money loan, there would be no equipment to which a land- lord’s lien could attach. If the landlord’s lien were always superior, lenders would not lend to tenants. When the timing changes, so do the results. The priority of a landlord’s lien is determined at the time the personal property is brought onto the leased premises. If the property is already subject to a UCC lien, the UCC lien will prevail in a priority contest. But if the property is not subject to a UCC security interest at the time it is brought onto the premises, the landlord’s lien will prevail. We learn an important lesson from the Ex-Cell-O case: if a lender makes a loan to-be-secured by the borrower’s equipment already on the leased prem- ises, the landlord’s lien has already attached, and a properly perfected UCC security interest will be subordinate to the landlord’s lien. Takeaway It is wise for a lender to require a written waiver of the landlord’s lien. A good waiver form will specify: (i) the parties to the lease; (ii) the date of the lease; (iii) the location of the premises, including a legal description; and (iv) the date occupancy begins. It is also prudent to attach an exhibit describing all of the personal property that would have been subject to the landlord’s lien but for the waiver. The waiver should expressly waive the provisions of A.R.S. §32-362 (or the applicable statute of the state in which the premises are located). The landlord is more likely to agree to the waiver if the lender agrees that should it need to enforce its security in- terest, it will remove the collateral from the premises within an agreed period of time (or pay the rent for the premises during the time the collateral remains in place), and repair or restore the prem- ises to their original condition after the lender removes the collateral. w 5 ISSUE 3. 2016