Leased Equipment: What You Need to Do First

It is not legal to sell what you do not own. Everyone knows that, right? Just as you can’t legally sell equipment that your brother-in-law owns, you also cannot sell equipment that is leased. The liens will state “Claiming proceeds does not constitute permission for the Debtor to dispose of the collateral”.

Why file a lien on a lease? It is not for a security interest. It is informational. It lessens the chance the equipment will be sold out from under the lessor. It shows the machinery is not free & clear to be sold outright.

There is a rise in leases. Inventory is sold to a leasing company, which then leases it back to the owner. It frees up capital. The problem is the “owner” doesn’t actually own it anymore. You are actually purchasing from the leasing company at that point.

The new owner, the finance company, will file a blanket lien. It most often does not include a list of equipment. It will state a finance/lease agreement number.

If a lien search is not done to find the leasing company and the seller does not disclose the lease or pay off the lease, that leasing company will come to you, just like any other finance company… because the lien follows the machine. Except they have a larger option of just picking up the equipment and not giving the option of buying it (again!) from the leasing company.

Make sure when you ask if there are liens to also ask if the machine is leased. Then request a lien search to verify.