What happens to commercial leases in a foreclosure?

Commercial property lease agreements generally state the events that will take place in case of a commercial foreclosure. Generally, lease agreements contain clauses on attornment, subordination, and non-disturbance. The attornment clause usually specifies that the tenant will be allowed to continue rental of the commercial property but with a new landlord. In this type of lease agreement, the tenant will not be evicted or affected by the foreclosure. Foreclosure proceedings for commercial property begin with the serving of the Notice of Intent to Foreclosure to the commercial property owner. This notification is sent through either certified mail or sheriff. After that, the commercial property owner should take the necessary action to stop foreclosure such as fulfill mortgage obligations. If not, the creditor will begin to act on the foreclosure process. A court will hold hearing on the creditor’s claim to foreclose the property and the court will issue a decision. The property will be sold in an auction to the higher bidder.

The new owner will be the new landlord. He will not be able to evict the existing tenants if there is an attornment clause on the lease agreement held between the tenants and the old owner. However, if the borrower took the mortgage before the lease agreement is signed, the lease will be held null and invalid. The new owner may or may not evict the existing tenants. If you are involved in this predicament, whether you are an owner, tenant, or buyer, it is important to hire the services of a competent lawyer.