Legal Corner
by Mike Garner
Stokes Lawrence, P.S.

Landlords have a lien to the extent of two months’ rent in all of their tenants’ personal property – automatically. The landlord’s lien is a creature of statute (Chapter 60.72 RCW), but some landlords do not know they have lien rights or how to enforce them.
Two months’ rent may not seem like much, but it is often all a landlord can hope to recover from a defaulting tenant, particularly one who abandoned the premises. All of the tenant’s personal property left behind is subject to the landlord’s lien; property left with the tenant by third parties (e.g., consignment sale items, or items left with the tenant for storage, repair, etc.) is not subject to the lien. And the landlord’s lien is prior to all other liens except tax liens and liens of deeds of trust or security agreements if the security agreements were filed or recorded before the tenancy commenced.
A tenant frequently finances some of its tenant improvements, furnishings, fixtures and equipment through a commercial lender. This financing is often arranged after the lease is signed, meaning the financing lien will be subordinate to the landlord’s lien. In that situation the lender may request that the landlord waive or subordinate its lien to the lien of the lender. The landlord should watch for two things when such a request is received:
A lender often finances only specific equipment, such as copiers or computers. In that case, the landlord should subordinate its lien to the lien of the lender but only on the financed equipment. The landlord should not subordinate its lien on all personal property of the tenant – only that property which will be subject to the lender’s security interest.
To make their lives easier, lenders often ask landlords to disclaim (or waive) landlords’ liens. This has the practical effect of eliminating the lien as if it never existed. Landlords should not do this. They should merely subordinate their lien, not waive it. A situation could arise where a secured lender wants to auction off the equipment subject to its security interest and there is a small balance owing on the tenant’s equipment loan. Should the net auction proceeds exceed the balance owed to the lender, then those proceeds would pass to the next most senior lienholder, typically the landlord. However, if the landlord has disclaimed or waived its lien, it has no first priority claim to those proceeds.

Another common situation is for the lender to come to the landlord after the tenancy has commenced and the tenant has taken possession, and ask the landlord to subordinate or waive its lien. Legally, the landlord has no obligation to do so. It may feel it needs to do so from a practical perspective because the tenant needs the loan and the lender will not make the loan unless the landlord has subordinated or waived its lien.
Sometimes it goes beyond this, in that the lender will not ask the landlord for a lien subordination or waiver until after the lender has made the loan to the tenant and the tenant has already used the loan proceeds to purchase the needed equipment and furniture. In these cases, the landlord still has no obligation to subordinate or waive its lien, and the lender has no leverage. Again, although there is no legal obligation, a landlord may feel compelled to subordinate or waive its lien as an accommodation to an anchor or major tenant or merely a tenant who needs good relationships with its lender to make a go of it in its business as the leased premises.

Finally, the lien is only good for two months rent, and only for 60 days after default. Therefore, once the lease has terminated, whether by its natural expiration or the tenant’s default, the lien will expire in 60 days if it is not acted upon. When a defaulting tenant leaves valuable personal property on the premises, a landlord must act immediately to enforce the lien rights. If the tenant missed the last two months’ rent, due on March 1 and April 1, an action must be started by April 30 to enforce a lien for both months’ rent and by May 31 to enforce a lien for April’s rent. The lien rights will expire on June 1. An action for delinquent rent can be commenced after that date but by then, the landlord will have lost its first priority position to proceed against the tenant’s personal property to collect that rent.