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Change of Ownership in your Commercial Lease? Here is everything You Need to Know

When the ownership of property changes in Arizona, the commercial lease associated with that property generally remains in effect. The lease is a legally binding agreement between the tenant (lessee) and the landlord (lessor), and it typically continues to be valid regardless of any changes in ownership.

The New Owner Must Honor your Lease.

The Arizona Revised Statutes and common lease provisions support the continuation of the lease under new ownership. The lease is considered an “encumbrance” on the property, meaning it is a legal interest or right that remains attached to the property even when ownership changes hands.

Here are a few key points to consider regarding the impact of ownership changes on a commercial lease in Arizona:

1. Lease Transfer: When a property is sold or ownership changes, the existing lease is typically transferred to the new owner. The new owner assumes all the rights and responsibilities of the previous owner, including honoring the terms of the existing lease.

Notification: The current landlord and the new owner are generally required to provide written notice to the tenant about the change in ownership. This lets the tenant know who the new landlord is and where to send rent payments.

1. Security Deposit: The security deposit held by the previous landlord should be transferred to the new owner, who becomes responsible for returning it to the tenant at the end of the lease term, minus any valid deductions as per the lease agreement.
2. Lease Terms and Conditions: The terms and conditions of the lease, including rent amount, duration, renewal options, and other provisions, remain in effect after a change in ownership. The existing lease typically binds the new owner until its expiration unless both parties mutually agree to modify the terms.
3. Subordination and Attornment: In some cases, the lease may contain a provision known as “subordination and attornment.” This provision states that the tenant agrees to recognize the new owner as the landlord and to attorn to them, effectively establishing a direct landlord-tenant relationship with the new owner.

What you do next may depend on when your lease is up

If your lease is expiring soon, it’s important to inquire about the new owner’s plans for the property. This can help you decide whether to renew your lease or start searching for other options. If you still have some time left on your lease, consider consulting with a business attorney to negotiate changes/modifications to the lease that are more favorable to you with the new owner.

It is possible to discuss with the new owner about ending the lease early or getting some previously sought provisions that the prior owner did not grant. If the new owner has plans to use the property for profit, they may want to retain as many tenants as possible.

Protect Your Rights as a Commercial Tenant

To ensure that your rights are protected, it is crucial to understand your lease thoroughly and not assume that the new owners will abide by its restrictions. You may need to take legal action if necessary. If you’re a commercial tenant facing disputes with your landlord, you can schedule a consultation with us for assistance.