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.