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Do Commercial Tenants Lose Their Rights When the Building Is Sold?

The sale of a commercial building or common property to new owners can raise significant uncertainty for business tenants whose livelihood may be tied to a familiar relationship with a landlord/owner, especially where there is goodwill and other capital associated with this specific location, such as foot traffic or a dedicated client base in the area. Certainly, a new owner can mean a very different way of conducting business and relating to the current tenants, but, in most cases, current commercial clients will retain the rights afforded to them by their presently enforceable lease.

Your Current Lease Should Control, Absent Special Provisions

A lease is, of course, a contract between the tenant and the landlord, and, as is generally the case with contracts, the fact that a third party (in the form of the new purchaser of the property) has assumed the obligations and rights of the lease by means of purchasing the property means that the third party must also fulfill those obligations of the lease to the same extent as the initial landlord. Thus, if you have a 24-month lease with the previous landlord, the new owner must abide by that obligation to provide you the space on the same terms as the previous landlord.

 

That said, the landlord with whom you conducted business may have inserted an early termination clause which does allow for a third party to terminate the lease in the case of a sale, as giving potential buyers the flexibility to terminate leases does raise the potential value of the property. Thus, working with a real estate litigation attorney to understand the terms of the lease is helpful to planning for both landlords and investors alike.

A New Landlord May Take a More Aggressive Approach to the Lease

Assuming no early termination clause exists, the commercial tenant can use the promises of the lease to remain in place on the same terms as before. But, even though the same lease is in place, this does not mean that the new landlord will necessarily operate in the same manner as the previous landlord with regard to what constitutes a breach of the lease which could lead to potential eviction proceedings.

 

For example, if the lease prohibits onsite food preparation for sale, or employees of businesses parking in certain spots, but the previous landlord never bothered to complain when tenants took such actions in violation of the lease, that is no guarantee that the new landlord won’t make a legal issue out of the violations, and prior custom may not be a valid defense to such actions.

 

Furthermore, it should go without saying that a failure to pay rent to the new landlord will in many cases give the new owner the ability to take legal action against the tenant terminating the lease.

The Landlord Is Not Necessarily Entitled to Renew the Lease Terms

Finally, it should be noted that a new owner will not be entitled to renew the terms of the lease at the expiration of the lease period, even if the previous landlord had gone month-to-month with the lease or never attempted to renegotiate the terms of the lease in a significant manner.

Contact the Real Estate Litigation Attorneys at Wagenseller Law Firm

At Wagenseller Law Firm in downtown Los Angeles, we provide full legal services to individuals and businesses in business and real estate litigation matters. We provide counsel and representation to landlords, developers, commercial tenants, and investors alike. Contact Wagenseller Law Firm today to schedule a consultation to discuss your real estate matter.

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