For many years, the only penalty for a lessor's failure to file a financing statement termination was a slap on the wrist. Now, Article 9 of the Uniform Commercial Code has been revised and a lessor’s failure to satisfy certain obligations will result in a $500 statutory penalty payable to the lessee for:

• filing a financing statement that the lessor is not authorized to file;
• failure to file a termination statement within a certain period of time after a proper request from the lessee;
• failure to terminate a security interest in other collateral or to release control of other collateral within a certain period of time after a proper request from the lessee; and
• failure to properly respond to a lessee’s request for an accounting, a list of collateral or statement of account within the required period.

Without the lessee’s proper authorization, a lessor may not file a financing statement. When a lessee executes a security agreement, which grants a lessor a security interest in certain collateral, the secured party has automatic authorization to file a financing statement for that collateral. However, certain leases may not be the types of security agreements that provide automatic authorization to file a financing statement. Typically, lessors file financing statements to notify other parties of that lessor’s ownership of the equipment or to protect their superior interest in the equipment should a lease be recharacterized as a security agreement. Under Revised Article 9, without specific authorization in the lease itself, a lessor cannot file a financing statement. Specific authorization is also needed for a broader description of the equipment on the financing statement.

Under §9-513, a lessor has 20 days from the date of the lessee’s request to release its interest in collateral. The lessee is required to satisfy all of its obligations that are secured by the collateral before making the request. The lessee can make the request in writing or in an electronically authenticated record. Moreover, under §9-625, in the event a lessor does not comply, the lessor is liable for damages in the amount of any loss caused by a failure to comply with this article. Loss caused by a failure to comply may include loss resulting from the lessee's inability to obtain, or increased costs of alternative financing.

If the leased equipment is subject to certificate of title laws, some states require the lessor to release the certificate of title sooner than the 20 days required under §9-513. In the event the state laws conflict with §9-513, state laws prevail. New York, California and Connecticut have laws requiring filing of releases within 20 days, which take precedence over §9-513.

Under §9-208, interests in certain types of collateral are perfected by filing a control agreement. If a lessor has control over a lessee’s deposit account, investment property, electronic chattel paper or a letter of credit right as security for the lessee’s obligations to the lessor, the lessor must release the control agreement within 10 days after the authenticated demand by the lessee to do so.

A lessee may request that the lessor provide an accounting of the unpaid amounts on the lessee’s account. This request must be in writing from the lessee and the lessor must respond within 14 days. If the lessor no longer retains an interest in the collateral, it must notify the lessee. If the lessor’s interest has been assigned, the lessor must provide the name and address of the assignee, if known.

The lessee may also request a statement of account by providing the lessor, in writing, what the lessee believes to be the amount of the unpaid obligations on the account. The lessor has 14 days to respond to the lessee’s statement of the account with an approval or explanation of the lessee’s errors.

The lessee may make a request regarding the collateral securing the lessee’s obligations by sending a list of what collateral the lessee believes secures the obligations, with specific details regarding the particular obligation, if lessee has more than one, and requesting that the lessor approve or correct the list. The lessor has 14 days to do so.

A lessee can make only one of the requests described above free of charge. For each additional request, the lessor may charge no more than $25 -- a pittance compared to the fine a lessor must pay for a failure to comply.