Thursday, September 23, 2010

Landlord Lien vs. Bank Lien

The landlord owned a commercial building. The tenant signed a lease that stated that all alterations and additions to the building which are permanently affixed to the premises automatically become the property of the landlord without any payment to tenant.

The tenant installed several large machines which became permanently affixed to the floor. At that time, the tenant also gave security interests in the machinery to its bank. The tenant then stopped paying rent, stopped paying its loan from the bank, and abandoned the machinery.

The landlord filed a distress warrant seeking to distrain the machinery. The bank filed a replevin action seeking attachment of the same machinery.

Illinois law grants a landlord a common law lien on its tenant's property for the non-payment of rent that is perfected by the filing of a distress warrant and inventory with the clerk of the court. 735 ILCS 5/9-302.

Unfortunately for the bank, the collateral at issue were trade fixtures. In order to perfect a lien against trade fixtures, the secured party must record its financing statement with the county recorder's office. 810 ILCS 5/9-501.

Therefore, the landlord's perfected security interest trumped the bank's unperfected security interest.

Southwest Bank of St. Louis v. Poulokefalos 01-09-2387 (June 4, 2010).

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