- Landlords, Don't Forget About Your Statutory Lien
- January 16, 2009
- Law Firm: Strasburger & Price, LLP - Dallas Office
In the present economy, commercial landlords are often faced with the daunting task of collecting money from defaulting tenants. The landlord may consult its lease only to find that the contractual landlord's lien provision was negotiated out of the lease. Texas law provides such commercial landlords with some relief, in the form of a statutory preference lien on the tenant's property in the building. The law allows the landlord to judicially enforce its lien for past due rent and, under some circumstances, prevail over secured creditors.
Texas law breaks leases into 12-month periods that end on the anniversary of the lease commencement. The term "current 12-month period" refers to the 12-month period in which a default in payment occurs. The statute grants the landlord a preferential lien for rent that is due and for rent that is to become due during the current 12-month period of the lease if no competing lien has been perfected before the start of that period.
In order for a landlord to preserve lien priority on rents more than six months past due, the landlord must record a lien statement in the county clerk's office. While there is no time limit set by statute for recordation, the landlord opens the door for secured creditors to have priority if it does not promptly record every six months.
Landlords should be advised, however, that a secured creditor can obtain priority over the landlord's statutory lien. Assume, for example, that the tenant enters into the lease on January 1, 2007, the secured creditor perfects a security interest on the tenant's property on March 3, 2007, and the tenant defaults (during the second year of the lease) on April 3, 2008. Because the creditor recorded the security interest on March 3, 2007 - before the "current 12-month period" began - the secured creditor prevails.
Because landlords do not have control over the perfection of competing security interests, the statutory lien does not give landlords the best available protection. When negotiating new leases, landlords should make sure that the leases include a contractual lien. Landlords who do not have the benefit of contractual liens, however, may use the statutory landlord's lien law to convert the tenant's personal property into cash to cover past due rent.