KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Filing UCC-1 when leasing / UCC delays closings
August 26, 2020
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Filing UCC-1 when leasing
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Ken
I know we can file a UCC-1 when we want a security interest in the equipment, but we have also used the UCC-1 successfully when leasing the system. Do you think this is a good practice?
Name withheld
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Response
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The UCC-1 is for perfecting a security interest in collateral to secure a loan or contractual obligation. That’s not really the situation when you lease the system because you don’t need a security interest in the equipment, you already own it. But filing the UCC-1 is one effective way to draw attention to the fact that the equipment is not free and unencumbered and salable. Since you own the equipment you can probably file the UCC-1, though your customer may claim that the filing is ineffective and improper. When the UCC-1 is not picked up until a sale you’re in a good position to demand payment or return of the equipment.
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UCC delays closings
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Ken,
Recently we had a client whose closing was delayed because the Buyers ran across a UCC-1 Security Interest in favor of a company that had not been in business for over five years. We began investigating and determined that when the Sellers set up an account with the vendor years ago they agreed to give the vendor a security interest in their company and all of its assets. The vendor filed a UCC-1 financing agreement at that time. The Sellers always paid on time and hadn’t used that vendor in years. The vendor was acquired by another company who was subsequently acquired by a multi-national corporation. All of the people that the Seller had dealt with had moved on. The Vendor had no record of the Buyer or the UCC-1. Long story short, it took us over a month and a few thousand in legal fees to get rid of the lien.
The morale of the story is, had the Seller paid an attorney to read the agreement the attorney would have bought this, and probably numerous other issues, to their attention. There was no reason for the security interest and business sense tells me that they could have omitted this provision and never had an issue.
Mitch Reitman
Reitman Consulting Group
817-698-9999
http://www.reitman.us
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Response
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Stale UCCs are indeed a nuisance. When selling your business, or buying one, it’s a good idea to check for liens, including those perfected under the Uniform Commercial Code [you know it as the UCC]. That way there won’t be surprises later and you’ll have time to track down and deal with filed liens. Other lien searches should be judgment liens, tax liens and mortgages.
Unless you have House Counsel with plenty of time you’re not going to be able to get every agreement you sign reviewed. That includes office equipment, vendor agreements, service agreements, car leases, etc. You end up agreeing to all kinds of terms, including liens.
If you don’t have House Counsel the closest you can get to that is the K&K Concierge Program, which makes K&K your house counsel. For information on the Concierge Program, click here, or contact Program Coordinator Stacy Spector,Esq at 516 747 6700 x 304, SSpector@Kirschenbaumesq.com for more information or to sign up.
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To order up to date Standard Form Alarm / Security / Fire and related Agreements, click here: www.alarmcontracts.com
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CONCIERGE LAWYER SERVICE PROGRAM FOR THE ALARM INDUSTRY
You can check out the program and sign up here: https://www.kirschenbaumesq.com/page/concierge or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com
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