The Law Q&A | What happens to leases when real estate changes hands

The Law Q&A | What happens to leases when real estate changes hands

Hey all you landlords and tenants, pull up a metaphorical chair and metaphorically listen close, because we're gonna talk about assignments of lease rights in the sale of real estate.

Did you know that when ownership changes hands in the middle of a lease with a tenant, the ownership change does not automatically transfer all the seller's/old landlord's rights to the buyer?

Leases do not transfer with the land. Leases are a specific agreement between a particular real-estate owner and particular tenant.

So, suppose owner is owed rent by tenant. Rent was to be paid monthly and tenant is three months behind.

Further suppose Seller sells his leased property to Buyer in the middle of a lease term while the tenant was three months behind. Without a specific agreement between Seller and Buyer that the rights Seller has against tenant are transferred to Buyer, Buyer will be out of luck in having a right to collect from tenant for those previous three months' rent.

On the other hand, just because Seller sold the real estate does not mean the tenant is off the hook on owing his former landlord the rent that was owed prior to sale. That debt obligation remains in force for Seller to try to collect.

However, if as part of the sale agreement Seller assigns (gives or transfers over) to Buyer all Seller's rights in the lease, then after Buyer completes the purchase, Buyer has all the rights of Seller. This would include the right to make claim for the rent that had become due prior to Buyer's purchase of the property.

If Buyer buys the property and there was no specific assignment of the lease given by Seller to Buyer, does the tenant have a right to remain in the real estate for the balance of the original lease term that had been bargained with Old-landlord/Seller?

Forget it. Tenant is out of luck (and soon is out on the street). Buyer, as the new owner who didn't take an assignment from Seller, was not a party to the lease agreement with tenant.

With certain exceptions under Illinois foreclosure law and certain federally regulated housing, Buyer is not obliged to allow tenant to continue to occupy the premises after Buyer becomes the new owner. If Buyer is inclined, a new offer could be made to tenant for a new lease agreement with all new terms, including a higher rent amount.

What's a tenant to do?Sue the living Hades out of Seller for breach of the lease agreement that was between them. If Buyer gave the boot, or demanded more onerous terms to allow tenant to stay, and tenant thereby suffers some economic injury (moving costs, higher rent under a new lease somewhere, etc.), Seller may be responsible for those costs.Seller is on the hook because of the promise made by Seller to tenant under that lease that Seller would provide such occupancy to tenant for the life of that lease. Unless, of course, Seller wisely included a term in the original lease that said the lease would end upon Seller transferring ownership to someone else.

So, the moral of this story: Sell softly and carry a big assignment.

Brett Kepley is a lawyer with Land of Lincoln Legal Assistance Foundation. You can send your questions to The Law Q&A, 302 N. First St., Champaign, IL 61820. Questions may be edited for space.