Does a lender need to file a precautionary UCC filing against the lessee of the equipment to perfect the lender’s security interest in the leased equipment?
UCC, Revised Article 9, Reduce Financial RiskDo you have UCC questions about equipment leases? Are you at risk to losing priority to other creditors? Attorney Bennett Cohen of Illinois law firm Cohen, Salk & Huvard, P.C., gets asked questions like this all the time, and has taken the time to write some answers. You may also want to check out his eBook on Purchase Money Security Interests (PMSI).
Precautionary UCC Filings against Lessees of Equipment: Does a lender need to file a precautionary UCC filing against the lessee of the equipment (in addition to lender’s UCC filing made against the lessor covering the lease and the leased equipment) to perfect the lender’s security interest in the leased equipment?
Answer: It is generally recommended that the lender require that a UCC filing be made by the lessor, as secured party, against the lessee, as debtor, describing the leased equipment, and that such filing be assigned to the lender. The reason such precautionary UCC filing against the lessee of the equipment is recommended is because it is difficult to conclusively determine in advance whether a court will classify a particular lease as a “true” lease (in such case, the lessee would have no ownership interest in the equipment to file against) or a lease “intended as security” (in such case, the lease would be viewed as a conditional sale agreement or security agreement, the lessee would be deemed the owner of the equipment and such precautionary UCC filing against the lessee would be essential for the lender’s perfection in the equipment). It should be noted that it is standard in the lease financing industry to require that precautionary UCC filings be made against the lessee.