Tenant occupancy after sale
A tenancy generally survives a sale. The buyer takes the property subject to the existing lease, and the tenancy continues with a new landlord.
After a foreclosure the position is more protective still, and it is where most purchasers get it wrong.
An ordinary sale#
The lease continues on its terms.
The security deposit obligation transfers with the property, and the tenant's claim to it does not depend on the departing landlord having handed it over. Buyers who did not obtain the deposit at closing still owe it.
Rent goes to the new owner from the date of transfer, and the tenant should get that in writing rather than being left to work out who to pay.
A foreclosure#
The redemption period comes first.
During it, the mortgagor keeps possession and the tenancy continues as before. A purchaser holding a sheriff's certificate owns a waiting position, not the building, and has no standing to deal with the tenant at all.
Once the period expires unredeemed and title vests, federal protections for bona fide tenants apply: at least ninety days' notice before requiring a tenant to vacate, and in many cases the existing lease must be honoured through its term.
So a building with a two-year lease signed six months before the foreclosure may not be available for eighteen months after title vests.
What this means for a purchaser#
The holding period is longer than the redemption period suggests.
Six months of redemption, plus ninety days minimum, plus whatever remains of the lease term where it must be honoured, plus the eviction process if the tenant does not leave.
Establishing who is in the building and on what terms belongs in due diligence before bidding, and it is the difference between an occupied property and a vacant one being different assets at the same price.
Rent keeps being owed#
Worth stating for tenants.
The obligation to pay rent does not stop because the building was foreclosed. A tenant who stops paying gives grounds for an eviction that has nothing to do with the sale and none of the protections that attach to one.
If it is unclear who to pay, ask in writing and keep the answer.
Cash for keys#
Frequently the better outcome for everyone.
A purchaser offering a tenant money to leave voluntarily by an agreed date, in agreed condition, with payment on handover, gets possession faster and in better shape than an eviction produces.
It can be offered to a protected tenant too — a tenant may prefer money and a clean exit to a lease in a building under new ownership. It just cannot be presented as an alternative to rights they actually hold.