Can a New Owner Change the Terms of a Commercial Lease?

Imagine you've signed a five-year commercial lease for your business's dream space. But two years into your lease, your landlord sells the building. You might wonder how this transfer of ownership affects your lease. Will the new owner honor the terms of the lease you had with your previous landlord? Is your lease still in place?

Lease Agreements Survive Ownership Changes

In general, after the new ownership change, your business will have a new landlord but not a new lease. Your lease will remain intact, and the new landlord will have to honor the terms of your existing lease. In other words, the new landlord generally can't change the terms of your commercial lease.

Almost all commercial leases include some type of assignment clause, often called a "Subletting and Assignment Clause." When you assign a lease, you transfer your rights and responsibilities under the lease to a new person (or entity). When a landlord sells a property, the sale typically includes the landlord assigning all the existing leases to the new property owner. As the assignee, the new property owner takes the place of the old landlord and becomes the new landlord under the lease.

Typically, your commercial lease's assignment clause will say that the landlord has the right to assign the lease without the tenant's consent. (On the other side, the clause could say that you either can't assign the lease, can only assign the lease with the landlord's permission, or can assign the lease without the landlord's permission. The first two options are more common than the third.)

As a result, unless your lease says otherwise, the landlord doesn't need your permission to assign the lease. You'll be bound to recognize the new owner as your landlord for the rest of the lease. The new landlord will have the same obligation. They'll have to acknowledge you as the new tenant and respect the terms of your lease.

What the New Owner Can't Change

Your new landlord can't change any of the terms of your lease unless you and the new landlord negotiate new terms. Specifically, the new owner, as long as these terms are covered in the original lease, can't change:

• the rent
• the date that rent is due
• the length of the lease
• the security deposit
• the premises being leased
• your use and limitations of use of the premises
• which party is responsible for improvements and alterations
• which party is responsible for maintenance and repairs
• which party is responsible for utilities, insurance, and taxes
• insurance requirements
• termination notice and provisions
• how the parties will handle disputes
• when the parties can assign or sublet the lease, and
• notice requirements.

When you get a new landlord, your situation should remain largely unchanged. You can expect to pay the same rent you agreed to, occupy the same premises, and distribute responsibilities as you did before.

What the New Owner Can Change

Just because the new landlord can't alter the terms of your existing agreement, it doesn't mean that you'll experience zero changes. The landlord can change things that aren't specified in or don't alter the terms of your agreement.

For example, suppose your lease says that your rent of $2,500 is due on the first of each month. The lease is silent on the method of payment. You and your landlord established a routine where you'd drop off a check for your rent in a security box the landlord installed on the side of your leased building. However, when the new owner takes over, they establish a new payment policy. The rent amount and due dates remain the same. But now tenants must either pay rent by direct deposit or mail a check to the new owner's business address.

Because your original lease doesn't cover how the rent must be paid, the new landlord is within their rights to establish a new, reasonable payment policy. So while you might've become accustomed to dropping your rent off in the designated box, you might now have to sign up for direct deposit or mail the check instead.

You should prepare yourself for other small changes to the status quo. For example, the new landlord owner could:

• hire a new janitorial service and switch the cleaning days from Saturdays to Sundays
• re-design the furniture setup in the common rooms
• paint the lobby a new color
• install a new security system
• change the internet provider, or
• implement a new communications policy.

As long as these changes don't violate your rights under the lease or meaningfully interfere with your business, the landlord has the right to make them.

If any of these changes are undesirable but permissible, you should try to work out a solution with your landlord. For instance, you can ask the new owner if you can still drop off your monthly check in the security box. The landlord might not feel strongly about how they get the rent as long as they get it.

What Happens to Your Commercial Lease in a Foreclosure?

The rules are a little different when the property you're leasing is part of a foreclosure sale. If your landlord defaults on a loan and the lender forecloses on the property, your commercial lease could be wiped out.

Generally, your commercial lease could be terminated in a commercial foreclosure, except in two cases.

The Mortgage is Subordinate to Your Lease

If you signed your lease before the landlord took out the mortgage, then your lease will survive the foreclosure. In that case, the mortgage is subordinate to your lease.

But if the mortgage existed before you signed your lease, then your lease is subordinate to the mortgage. In that case, the mortgage takes priority and your lease can be eliminated unless you and the lender have an agreement otherwise (as discussed next).

You Signed an SNDA With the Landlord's Lender