In the Spotlight: Landlord's Waiver or Subordination to Tenant's Lender's Security Interest

Most commercial real estate lease forms (and most states' laws) grant the landlord a lien on the tenant's personal property located at the leased premises in the event of an uncured default by the tenant under the lease. In situations where a tenant (as borrower) enters into a loan transaction with a third-party lender and uses the loan proceeds to acquire personal property to be kept at the leased premises (such as equipment or inventory), most lenders will want priority rights to the same in the event that the tenant/borrower defaults under the loan. In order to protect the lender's security interest in such equipment or inventory, tenants commonly provide the landlord with the tenant's lender's standard form of “Waiver (or Subordination) and Consent Agreement” (whereby the landlord waives or subordinates the landlord's lien on the tenant's personal property that is secured by the loan) and request that the landlord execute such agreement. Without such waiver or subordination agreement from the landlord, in the event of a default under the lease, the landlord might preempt the lender's rights in such property.