As a tenant of commercial premises you will have been advised of your obligations in the lease and what rights you have, if any, to dispose of your leasehold interest during the contractual term. However, what happens if your landlord decides to sell their interest in the premises during your lease term? Will this affect your tenancy?
Yildiz Betez, commercial property lawyer at Thackray Williams explains what you need to consider if your landlord decides to sell up.
What happens to your tenancy?
Nothing will happen to your tenancy during the contractual term.
Your landlord’s interest will be sold subject to any existing leases, which means that the buyer will inherit you as a tenant and become your new landlord.
If you have a lease which is protected by the Landlord and Tenant Act 1954, and which therefore gives you a right to request a new lease at the end of your contractual term with only limited grounds on which such a request can be refused, the implications of a sale by your landlord will depend on what the new owner intends to do with the premises.
If, for example, they intend to occupy the premises themselves or to demolish and redevelop the premises, then they will be entitled to refuse your request for a new lease and to bring your tenancy to an end. However, to do this your new landlord will still have to comply with the statutory procedure set out in the 1954 Act to obtain vacant possession.
If you have been advised of an intended sale by your landlord you may want to make initial enquiries to find out what the new owner intends to do. You should take immediate legal advice in the event it becomes clear that your new landlord intends to regain possession under the 1954 Act.
Do the landlord’s obligations in your lease continue after a sale?
If your lease was granted on or after 1 January 1996 your landlord will remain liable for their obligations to you under your lease even after they have sold their interest in the premises. This is unless:
- they negotiate a release from liability with you;
- there is a provision in the lease which excludes liability following a sale of their interest; or
- you agree to a release under the statutory procedure for release set out in the Landlord and Tenant (Covenants) Act 1995.
Whether a lease contains an exclusion of liability clause will depend on what was agreed when your lease was granted. If you have taken an assignment of your lease you will need to check the terms to establish if your landlord’s liability has already been expressly excluded following the sale of the reversionary interest.
Your main considerations where a landlord has excluded liability in the lease itself are where they have obligations to repair or to provide services. Your new landlord will inherit these obligations, and any breaches, and where a new landlord has little or no financial substance this may impact on you. Such a provision may also have an impact on the commercial value of your lease and the marketability to other tenants if you decide to assign your lease.
Unless a release is granted or obtained, your original landlord will remain liable for the performance of the landlord’s obligations following the sale. This means that the original landlord and any new landlord will have joint and several liability to you.
If your lease was granted before 1 January 1996 the position is different: the original landlord who granted you the lease will remain liable for the landlord’s obligations throughout the term of the lease and cannot avoid liability by including an exclusion clause in the lease. A new landlord who acquires the property on a subsequent transfer will only be liable during their time of ownership – as soon as they sell their interest their liability will come to an end.
How will you know if there has been a sale?
Your new landlord will be under an obligation to give you, and any other tenants, 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 your lease.
Your occupation and use of the premises should not be affected by a sale of the property and you will not be under any additional obligations to the new landlord.
However, if you have any concerns about how a change of ownership might affect you or the value of your lease, please contact Yildiz.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.