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What happens to commercial tenants after foreclosure?

| Mar 22, 2016 | Real Estate Transactions |

Small business owners lease commercial space all across Phoenix. Many assume that as long as they pay rent and comply with the terms set in the lease agreement, they will be able to stay in that space as long as the lease allows.

However, there are situations when a commercial tenant can be evicted, even if it has never violated a lease or been late with payments. This can happen if and when the commercial property enters foreclosure.

Readers may be quite familiar with residential foreclosures, especially in the wake of the housing market collapse, but commercial property owners can also lose property in foreclosure if they cannot keep up with mortgage payments.

This can come as quite an unwelcome surprise to tenants who have consistently met their individual financial obligations. Most people would think that if they pay their rent, the property owner has no reason to miss their own payments. Sadly, it does not always work that way. 

When commercial property goes into foreclosure, as noted in this FindLaw article, tenants typically face one of three different outcomes:

  1. They can be evicted after the building is sold to a new owner
  2. They can continue their lease with the new landlord
  3. They lose their lose and their space to another party

However, it should be noted that there are specific rules and legal requirements in place that need to be examined before any of this happens. Elements that should be assessed include special clauses in the original lease agreement, state commercial property laws and when the mortgage and leases were signed.

Whether you are a commercial landlord or a business owner leasing space, it can be crucial that you understand your rights. Discussing your options with an attorney can be wise as it will help you assess the situation and determine your next steps.

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