Lease Contract When Property Sold

Think Blue:

Is the lease contract terminated because A sold the house to C, or has the lease obligation as landlord been transferred from A to C. In other words, can C kick out tenant B or not?

A cannot simply "sell" the house to C. He has to sell it to C with all existing obligations, otherwise he is selling property in capacities that are not his.

If you think this is stretching ownership theory, you shouldn't worry about it anyway because all serious what-ifs can be covered in the first contract between A and B.

Think Blue:

Is the lease contract terminated because bank D foreclosed on the house, or has the lease obligation as landlord been transferred from A to D. In other words, can D kick out tenant B or not?

Again, it depends on what A is promising B in the contract.

Situation 1:

I would say C has no right to evict the tenant.

(If the lease was properly disclosed, well, then C has tenant. If the lease was not disclosed, then C can sue A for fraud.)

 

Situation 2:

Interesting. I would say the bank, D, can definitely evict the tenant because the lease is completely separate from mortgage. The tenant can sue A for any damages from eviction.

(Taken to the extreme, let's say A gets mortgage from D then leases the house for $1 a month for life to B. Then defaults on mortgage. Obviously, the bank would not have to honor the lease agreement.)  

 

Situation 1: (Extreme Hypothetical?)

Let's say A buys a house and leases it to B for $100 a month for life. (It was family, a favor, charity - whatever the reason) Then A sells house to C and doesn't fully disclose the terms of the lease. He then skedaddles off with money (or spends it) before C realizes what just happened. What happens next? Can C evict the tenant even though the tenant signed a honest (albeit below market value) lease?

Sieben:

A cannot simply "sell" the house to C. He has to sell it to C with all existing obligations, otherwise he is selling property in capacities that are not his.

My interpretation of your statement (or at least its implication) is that A cannot sell to C, unless A fulfills all the lease obligations to B.

For A to fulfill the obligation, either A must:

1. maintain ownership of the house until the lease is completed; or,
2. find a potential buyer C who would agree to assume the lease obligation.

Then once buyer C agrees to assume the lease obligation, then A is free and clear of the contract, i.e. not bound by the lease contract anymore.

But if a title registry company were to transfer title from A to C, without C assuming the lease obligation, then an arbitrator can rule the title transfer to be illegitimate, and declare the sale of the house null and void, which in the case A still owns the house.

Then as a consequence, tenant B can prevent the sale of house, which in effect places a lien on the property, until tenant B can be assured that buyer C has assumed the lease obligation.

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However, the alternative would be to assume that C automatically assumes all lease obligations upon purchase of the house.

But this presents the problem of A not disclosing to C the lease contract, which is discussed below:

TheNcredibleEgg:

Situation 1:

I would say C has no right to evict the tenant.

(If the lease was properly disclosed, well, then C has tenant. If the lease was not disclosed, then C can sue A for fraud.)

In this legal scenario, if seller A did not disclose to buyer C the lease contract, then C is stuck with tenant B. However, you have considered some perverse outcomes, when A games the system.

TheNcredibleEgg:

Situation 1: (Extreme Hypothetical?)

Let's say A buys a house and leases it to B for $100 a month for life. (It was family, a favor, charity - whatever the reason) Then A sells house to C and doesn't fully disclose the terms of the lease. He then skedaddles off with money (or spends it) before C realizes what just happened. What happens next? Can C evict the tenant even though the tenant signed a honest (albeit below market value) lease?

Here is how the problem can perhaps be solved. If the lease contract can somehow be detached from the sale, then A can legitimately transfer title to C, without C assuming the lease obligation.

Then seller A defaults on the lease contract with tenant B, if buyer C evicts tenant B. This is because A cannot provide the house to tenant B for the remainder of the lease.

Therefore tenant B can sue seller A for default.

In your opinion, would this resolve the extreme hypothetical, or do you see other problems?

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I will defer discussion of the bank foreclosure (Situation #2) until later.