Commercial Foreclosure
A commercial lease is a lease held by a tenant of a commercial property, generally to operate a business out of the location. When the property owner enters foreclosure on the property itself, the commercial lease may be affected. This can leave many businesses wondering what will happen to their property in this situation. The laws do differ from state to state. An attorney can help the property owner or the lease holder to navigate those laws.
The First in Time, First in Right Law
In many cases, a law called the First in Time, First in Right is applicable in this type of commercial lease situation. This law has to do with the signing of contracts. In each situation, the dates when the mortgage and the lease were signed are taken into consideration.
Specifically, if the mortgage date is before the lease date, the lease is secondary to the mortgage. Once the property enters commercial foreclosure and the mortgage lender sells the property, the new owner has the right to make his or her own changes to leases, often times voiding them. In most states, the new owner will need to get court permission to evict the current tenant. In this situation, the tenant's rights are very few, even if the tenant has abided by the contract to the letter.
Look at the Contract
In some lease agreements, there are specific terms that outline what occurs in the case of a foreclosure on the property, or a change of hands of that property. Look at the lease in detail. Specifically, look for clauses such as the following in the lease itself:
- Subordination clause
- Non-Disturbance clause
- Attornment clauses (allows the lease holder to remain with the new property owner after the sale)
Keep in mind that signing a new lease with the property owner may be necessary. Also, note that it is unlikely that a new property owner will evict a business during the commercial foreclosure process. In most cases, unless the property will be tore down or used differently, the new commercial property owner will want to keep those steadily paying clients in position.
Hiring an Attorney
In situations where commercial foreclosure is occurring, or likely to occur, the lease holder may wish to secure an attorney. This attorney will provide the individual with the legal representation necessary to ensure his rights are maintained during the process. It is also ideal to work with an attorney to develop new leases with the new property owner.
