If a rental property is in foreclosure, does that constitute a default of a commercial lease?

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If a rental property is in foreclosure, does that constitute a default of a commercial lease?

I signed a 3 year lease in 03/10. I just received a notice of default by my landlord’s bank and I know the property is going to sheriff’s sale next month. We have been speaking to them about possibly getting out of our lease and as per a couple attorneys that I spoke to they have said that the landlord is in default since he is in foreclosure. Legally if we wanted to close and leave they couldn’t do anything. We know we can stay but want to know if we are tied to the landlords now considering they defaulted back in January and signed our lease in March.

Asked on August 13, 2010 under Real Estate Law, Michigan

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

If I read your question correctly, the mortgage that was in effect prior to your signing the lease was also in default prior to your signing the lease.  Therefore, your lease would most likely be held as void.  In commercial lease situations and foreclosure, "who came first" matters.  But I caution you: your lease could contain a provision that deals with the default situation and should be read by an attorney in your area to best advise you on how to proceed.  And really the new landlord can choose to keep the tenancy - and you could probably refuse to accept it - but check if there is an atonement clause or subordination clause or non-disturbance clause that could make a difference in the outcome.  Yes, he defaulted but had he been foreclosed upon yet?  Seek legal help.  Good luck.


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