Commercial real estate and other real property are frequently subject to liens during the ordinary course of business. These act as collateral for lenders and other companies who want protection on their investments. However, while a lien remains on a property, it prevents the owner from performing critical actions such as selling, transferring, or otherwise disposing of it.
Resolving liens on commercial property is critical if you want to change its ownership. Below, we discuss how they impact your business and how to end them.
What Is a Commercial Lien
A commercial lien is a legal right or claim on a business asset usually placed to satisfy a debt. Liens can be placed on properties by creditors or the court to resolve financial disputes. They may also be placed in advance to protect the lienholder during a financial partnership.
Commercial liens can be placed on any asset with significant value. Real estate is often used, but liens may also be applied to company vehicles and inventory. If a person has not repaid the debt owed or the terms of the contract are not upheld, a lienholder has the right to enforce the lien and has the right to seize and sell the item on which the lien is placed.
Types of Commercial Liens in Florida
There are many types of liens permitted under Florida law. Some of the most common types include:
- Bank Liens: If a lender or investor offers your company funds to purchase equipment, they may place a lien on the purchased property as part of the loan. For example, if you buy a warehouse with a bank loan, the bank will likely put a lien on the location as collateral if you do not repay the loan.
- Judgment Liens: Courts may place judgment liens on company assets if a lawsuit is ruled against you. They provide security to the other party that you will pay the judgment owed to the opposing party.
- Mechanics Liens: Contractors can place liens on real estate to ensure they are paid for their services. Construction companies often put them on commercial properties for this reason.
- Tax Liens: If a property is subject to annual taxes that have not been paid or if a business is significantly behind on paying taxes, federal, state, and local governments may place a tax lien on it to ensure that the back taxes are paid.
- Real Estate Liens: Any of the above can be applied to commercial real estate. For example, mortgages involve placing a lien on the purchased property until the mortgage is paid in full. In addition, Florida allows real estate agents to put them on properties if they are involved in a transaction until they are paid their commission.
How Commercial Liens Can Impact Your Business
A lien on commercial property can significantly impact your company’s finances and rights. The lien gives the lienholder the security of knowing they will be repaid. The lienholder can seize the property if they are not paid on time or if the contract is otherwise violated. This is the most common way they can impact your business: if something prevents you from paying a lienholder on time, you may lose the right to it entirely. Other potential impacts include:
- Inability to dispose of a property. The borrower cannot transfer an item with a lien placed on it without the lienholder’s permission. If the borrower receives permission to sell it, you will likely be obliged to pay the lienholder in full out of your proceeds from the sale.
- Inability to receive additional loans using the property as collateral. Many lienholders use contract clauses that prevent borrowers from making other agreements that rely on the item as collateral. This protects the lienholder’s investment but restricts the borrower from possible sources of credit.
- Reduced ability to receive other loans. Liens are matters of public record. As such, lenders and potential creditors who see them on your property may decide your business is not eligible for additional credit.
How to Resolve a Commercial Lien in Florida
Resolving a lien removes it from the property and returns it to your complete control. You can remove liens from a property by:
- Paying off the debt in full, so the lienholder no longer has a debt for the item to secure.
- Negotiate with the lienholder to settle the debt for less than what you owe.
- Dispute the lien, such as by arguing that a previously undiscovered lien from a property you purchased is not your responsibility or that it was not placed legally.
At EPGD Business Law, we specialize in commercial, financial, and real estate concerns. We can guide you through the process of resolving a lien on your commercial property so your business can move forward unencumbered. Schedule your consultation today to learn more about how we can help.