If I buy a commercial building, how do I start collecting the rent from leases negotiated with the previous landlord?


#1

Hi,

I am considering bidding on a small commercial retail shopping center in my area. Most of the center is occupied with paying tenants. My question is, what is the right way to ‘take over’ those rental payments that the commercial tenants would continue to pay? Obviously they negotiated contracts with the old landlord. What legal remedies do I have if they refuse to start paying me?

I would assume there would be something short of eviction, especially if the tenant is a good credit, and I really wouldn’t want to evict them.

I presume that all of the leases with their original terms (options to renew, limits on price changes etc.) stay in place.

Specific guidance or general suggestions on reading about trustee sales for commercial properties would be welcome.

Thanks in advance.


#2

For clarity, I mean that I would be buying this commercial property at a trustee auction, not through a traditional Purchase and Sale Agreement where leases would be assigned.


#3

Typically the existing leases are wiped out by a foreclosure as most lenders require all leases to be subordinate to the loan. If they refuse to either pay you or enter into a new lease with you, your remedy would be to evict them.


#4

Thanks very much, Sean.

Is it typical for the landlord and tenant to file a subordination agreement with the recorder if for example a tenant is two years into a 10 year lease when the landlord takes out a new loan?

(In other words, is it likely that a title search will turn up evidence of subordination for leases whose inception pre-date the loan in question?)

I presume that all leases signed after the loan is made are subordinate in the manner you suggest. Thanks again!


#5

Hi Tom, If these leases were recorded against the property then there would have been a subordination agreement. A land lease where a tenant is building a structure at their own expense on leased land would have a recorded leasehold agreement. If you cannot find a recorded lease then these leases would have been wiped out by the foreclosure.