What Happens When The Building You Occupy Is Sold?
One of last week’s top local commercial real estate stories tells us that Technology Park, a suburban park containing office, flex and warehouse/distribution space in Lake Mary, just sold for 21.3 million dollars. This situation happens every so often in the commercial real estate industry and there are some things you need to know if it ever happens to you.
Do your lease terms change under new ownership?
No, they do not change. Your lease is a legally binding document until it expires.
Is there anything that you need to do? Any documentation to be provided?
Yes, before the sale finalizes you will be asked by your current landlord (seller) to sign an estoppel agreement.
What is an estoppel agreement? Does this protect the tenant?
The estoppel is a certified statement provided by the landlord verifying the terms and conditions of the lease to the buyer. It does not protect and may even hurt the tenant if the seller fills it out incorrectly and the tenant mistakenly signs it. For instance, the seller may state an erroneous amount, or even $0 amount for the tenant’s security deposit. Once the building sells, the tenant has no recourse to the seller to return the deposit when they move out. The buyer normally would be responsible for the return of the deposit but now can reference the estoppel and say you agreed to the amount under security deposit. Therefore, an estoppel needs to be reviewed by both your attorney and your broker before being returned to your landlord.
The estoppel is also a leveraging opportunity for the tenant to address any issues that may exist in the building or with the landlord as the building is most likely being sold or refinanced.
Are there any day-to-day changes that happen?
Yes, you may have a new property manager. You will be notified of the change of address under the notices provision of your lease. All future rent payments and correspondence will need to go to the new landlord or landlord agent.
Any final thoughts or things a tenant should know?
A couple things can happen as a result of a property sale. First, if the property sells at a high price, the property appraiser may re-assess the property causing real estate taxes to increase. Those increases will be passed through to all the tenants in the building. Second, most buyers tend to be very proud of their new asset, so if you want additional space or it's getting close to renewal time, rates may be higher than you would expect. Consider a broker that is focused on tenants in the office market to walk you through all of this, as well as to build leverage for your upcoming renewal or possible relocation.