Include a Waiver of the Landlord’s Lien
Common law gave a landlord a lien to sell abandoned personal property left on rented or leased premises by a former tenant to cover unpaid rent or damages to the property. Over the years, states have enacted statutes codifying the lien and including limitations. In Virginia, the statutes apply the lien to the tenant’s personal property, but for a maximum of six months rent, and they exclude inventories that are sold in the ordinary course of business.
So why is this important to a car dealer? Because a huge proportion of a dealer’s hard assets consists of inventories – mostly cars and parts. And these inventories, for a franchised dealer, will be subject to a floorplan lien. A floorplan source generally demands a waiver of the landlord’s lien in any floorplan line document package so that vehicles and other inventories can be recovered in the event of a dealer default without fear of competing landlord claims.
If the landlord and the dealer tenant are commonly owned, a lien waiver is not an issue. The landlord will simply sign the landlord’s lien. But what if the landlord and the dealer tenant are not commonly owned? And what if there is some point of contention between the landlord and the tenant, like responsibility for major roof repairs for example? Then what?
A landlord may very well simply refuse to sign the landlord’s lien, and this will require the dealer to knuckle under to the landlord’s demands, to reconsider going with a new floorplan provider, or to post some different sort of security. You may ask why this is an issue if inventories are exempt from the landlord’s lien. However, remember that only inventories sold in the ordinary course of business are exempt from the landlord’s lien. So the landlord cannot assert a lien against a customer who buys from the dealer. But when the inventory is on the premises of the tenant in bulk, or if there is a bulk transfer of the inventories if, for example, the dealer goes out of business, then the landlord may have a claim.
The answer is simple. A dealer should make sure it includes in any real estate lease a waiver of the landlord’s lien and a requirement that the landlord execute future waivers of the landlord’s lien. That will facilitate the ability to make a change in floorplan lender.