The "First In Time, First In Right" Rule

The rule known as First in Time, First in Right applies to commercial foreclosure. This rule is one applied to the actual right of the tenant to remain in the property after the commercial foreclosure takes place. In commercial foreclosure, the lender on the property loan files a legal claim against the property owner for nonpayment of the loan. When this occurs, a new party may purchase the property and operate it. The tenant, in most cases, has no right to the property if the new owner does not want them to.

Understanding Key Facts

When a new property owner purchases a commercial foreclosed property, the new property owner becomes responsible for the building as well as the leases and tenants within it. In most situations, the new property owner has the right to force tenants of the building to move from the premises due to the foreclosure, unless the First in Time, First in Right rule applies. In order for this to apply, the following circumstance must occur.

The tenant must have signed the lease agreement that is currently in place prior to the lien holder obtaining the rights to the property. For example, if the property owner signs a lease agreement with a tenant for five years, then obtains a loan on the property after the lease is put into place, the tenant’s contract holds true. In this case, the First in Time, First in Right rule applies.

In other situations it does not. Specifically, when the original property owner signs a lease after accepting the mortgage, the tenant’s lease did not come first and therefore does not hold true. In this situation, the tenant has options:

• The tenant can leave the property and seek out a new location. This might be necessary if the new property owner does not want the tenant to be in place.
• The tenant and new property owner can work out a new lease.
• The new property owner can apply the current lease and be a substitute landlord, meaning the current lease terms will continue to apply.

In many circumstances, the tenant is unlikely to be evicted since commercial properties are hard to fill. However, if the tenant is behind on payments, eviction may be necessary.

Hire an Attorney

In order to apply the First in Time, First in Right rule to any case, it should be clarified legally. Hire an attorney to work to represent the tenant to ensure his or her rights are fully considered in such circumstances. An attorney can also work to ensure that the new lease is fair to all parties.