how do i update iphone that has security lockout

If the phone says "Security Lockout" on the screen, there is no way that it can be updated in that state.

And, you can't restore the phone until you first erase / reset the phone.

If you forgot your iPhone passcode - Apple Support

Probably cause the phone doesn’t belong to you

In that case, the screen would read Activation Lock, not Security Lock as the op has described. And, there would be no mention of software update.