Legal Question in Real Estate Law in California

Generally, no. However, if neither the lease nor a short form memorandum of lease has been recorded, AND the new owner takes title without knowledge of your lease, then they may have the right to assert their ownership title is superior to your leasehold title. Generally, though, a buyer of commercial real estate makes finding out about existing leases one of the top priorities of the purchase process. One other exception is if a lender forecloses whose security in the property was recorded before you entered into your lease. In that case, because foreclosure of a deed of trust wipes out most all claims on title that arise after the deed of trust was recorded, your lease would be wiped out even if recorded.

If the lender has foreclosed under a deed of trust, and the deed of trust is senior to your lease, your lease may be wiped out. The Protecting Tenants at Foreclosure Act of 2009 does not apply to commercial tenants, based on my reading of the law. The answer is different with a sale, because the new owner is actually subject to the lease. But with foreclosure, the title transferred at the trustee's sale relates back to the status of the title at the time the deed of trust was executed, and for that reason, junior commercial leases are wiped out.

If the building sells, the leases are unaffected UNLESS a lease contains a provision to the contrary, e.g., "This lease may be (or will be) terminated upon any sale of the building."

If there is a foreclosure, the relative rights of the tenant(s) and the buyer are determined by the seniority of their rights. A lease entered into before the foreclosed deed of trust is senior to the deed of trust and, usually at least, is unaffected by a foreclosure. This is relatively uncommon because leases generally are shorter in duration than deeds of trust, but it does happen.

Further, many foreclosing lenders and buyers at foreclosure sales do not want the building to be vacant; they want it to be full of rent-paying tenants. Therefore, there is a strong tendency of foreclosure buyers to leave the tenants in place even when, due to the seniority of the mortgage over the lease, they could evict the tenants.