Is a lease to a property considered an asset?
June 24, 2012 8:07 PM   Subscribe

Is a property lease considered an asset in a UCC-1 financing statement? I recently sold my small business and am carrying a note for the buyer. His collateral: the assets of the business he bought from me. If the buyer defaults I will want to take possession of the assets, per the UCC-1. The foreclosure process is straight forward, but I do not know if the new lease he signed with my old landlord is considered an asset by the UCC-1. If it isn't, how can I retrieve my assets if he still "owns" the lease?
posted by Izzy to Law & Government (4 answers total) 2 users marked this as a favorite
Did an attorney handle this transaction? They would be the best one to ask about this, since I'm pretty sure it's going to depend on how your security agreement and financing statement are phrased, and possibly the terms of the lease the person signed.
posted by gracedissolved at 8:33 AM on June 25, 2012

In many states the term "all assets" will be too broad to be enforceable. You need to look not just to the UCC-1 financing statement, but also to the underlying security agreement. In MO, for example, it is OK to list "all assets" in the UCC-1, but the underlying security agreement has to have more detail. See ProGrowth Bank, Inc. v. Wells Fargo Bank, N.A., 558 F.3d 809, 813 (8th Cir. 2009) (noting that "[w]hen faced with a financing statement purporting to cover 'all assets' of a debtor, it is then incumbent upon the subsequent creditor to investigate whether the collateral at issue is in fact covered by a security agreement," and that "[w]hile such a broad, generic description is insufficient to describe collateral in a security agreement, it is sufficient to describe collateral in a financing statement because it puts subsequent searchers on notice that any item of collateral owned by the debtor may be encumbered, which is the purpose of the filing system.").

I would definitely recommend that you have a lawyer look over the the agreement to make sure it is enforceable at all--you don't want to find out only after a default that it is not.
posted by Emera Gratia at 10:11 AM on June 25, 2012

Thanks for the feedback. I'm meeting with my lawyer late this week, but want to understand the legal situation as best I can before we meet. I reexamined the UCC-1 financing statement that I filed, and the real estate broker (and lawyer) who handled the transaction seems to have covered my arse. Item 4 of the statement lists as collateral not only the physical assets of the business, but also "all chattel paper, all contracts, all documents...." Insofar as a lease is a contract, I believe that the lease the buyer signed with my old landlord is an asset that I can repossess.
posted by Izzy at 9:36 AM on June 26, 2012

Definitely talk to your lawyer, but the general UCC rule excludes leases of real property. See UCC 9-109 (excluding "the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder"). There may be state law exceptions that can help you or non-UCC remedies available, but the UCC repossession remedy is unlikely to apply.
posted by Emera Gratia at 12:15 PM on June 26, 2012

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