Legal Question in Business Law in California

Re: Foreclosure, lease still valid?

i rarly disagree with mr whipple as i read his answers which are thoughtfull and usually good advice ---- but this time he did not go far encough -- i have seen times where a forclosing patry wipes out all inferior lines or encumberances and you may be out of luck --- find a attorney who has expertise in real estate law and set up an apppointment for tomorrow -- or yesterday as you do not have much time -- bring all documentation between you and your former landlord and the original lease and all ammendments, extentions and all leases with him -- give him/her all of the facts and show him/her the correspondence from the new landlord and see if he/she can negotiate with the new landlord

Re: Foreclosure, lease still valid?

As I suppose you know, an unexpired lease isn't usually disturbed by a change in ownership of a property; the new owner takes title "subject to" the unexpired term of the lease. The lease is a valid possessory interest in the property, and if it predates the change of ownership, it's something the old owner can't sell and the new owner can't buy, at least not from the old owner.

This is true even if the lease isn't recorded, provided the existence of the lease is discoverable by an inspection of the premises.

However, lessees can and sometimes do subordinate their rights of possession to a future lender of the landlord by means of a subordination agreement, even though, absent the agreement, the tenant's rights would be superior to those of the lienholder (due to priority in time).

Subordination agreements seem to be of two types: (1) automatic subordination, where the lease says it is automatically subordinate to any later-created mortgages or deeds of trust whatsoever; and (2) executory subordination, where the lessee agrees, upon request, to sign an agreement subordinating its lease rights to the lien of the mortgagee or trust deed holder.

The fairness (and lawfulness) of subordination agreements has been tested in court. So far, no California court has invalidated such a clause.

The flipside of a subordination clause or agreement is a nondisturbance clause, in which a lender whose lien is senior to the lease (i.e., the lien was created earlier) agrees with the tenant that if the lien is foreclosed, the tenancy will not be affected.

I think you must (a) read your lease carefully to find the subordination clause, if indeed there is one; and (b) negotiate with the new owner, who may prefer to keep you as a tenant but under HIS terms and rates.

If there is anything suspicious or unfair seeming, I would suggest retaining a local real estate lawyer to read all the lease documents carefully to make sure the old landlord didn't defraud you and the foreclosing lienholder is giving you the straight story. However, these clauses are fairly commonplace in commercial leases.