What happens to a commercial lease when a property is sold?

What happens to the tenancy?

When a commercial property is sold, nothing will happen to the tenancy if the property is sold during the contractual tenancy term. In other words, the landlord’s interest will be sold subject to the existing lease, which means that the buyer will inherit any tenant(s) and become the new landlord.

If the lease is protected by the Landlord and Tenant Act 1954, which gives a tenant the right to request a new lease at the end of the term with only limited grounds on which such a request can be refused, the implication of a sale by a landlord will depend on what the new owner intends to do with the premises.

If the new owner wishes to occupy the premises themselves or to demolish and redevelop the premises, then they will be entitled to refuse the tenant’s request for a new lease and to bring the tenancy to an end. Therefore, if a tenant is advised of an intended sale, they should make initial enquiries to find out what the new owner intends to do. Tenants should take immediate legal advice in the event it becomes clear their new landlord intends to look to regain possession under the 1954 Act.

Do a landlord’s obligations in a lease continue after a sale?

If the lease was granted on or after 1 January 1996 the landlord will remain liable for their obligations in the lease even after they have sold their interest in the premises. This means that the original landlord and any new landlord will have joint and several liability to the tenant. This is unless:

  • Agreement is reached to a release under the statutory procedure for release set out in the Landlord and Tenant (Covenants) Act 1995
  • The landlord negotiates a release of liability from the tenant; or
  • there is a provision in the lease which excludes landlord liability following a sale of their interest.

If a lease was granted before 1 January 1996 the position is different: the original landlord who granted the lease will remain liable for their obligations throughout the term of the lease and cannot avoid liability by including an exclusion clause in the lease.

How will the tenant know if there has been a sale?

It is standard practice for the landlord to give the tenant notice of completion of the sale confirming the buyer’s name, their contact details and their bank details for payment of rent and any other sums due under the lease.

Conclusion

A tenant’s occupation and use of the premises should not be affected by a change in ownership of the property and the tenant will not be under any additional obligations to the new landlord. However, tenants should try and ascertain the new owner’s intentions as soon as possible so they are well prepared and take legal advice if it becomes clear their new landlord intends to look to regain possession of the premises under the 1954 Act.

If you would like more information about this or any other commercial property matters, please contact Matthew Morris-Ashton, who is a solicitor working as part of the Commercial Property Team at Phillips. You can contact him by emailing [email protected] or by calling 01256 854602.

Alternatively click here to go to our contact page.