On the sale of interests in land does the benefit of any occupational leases and income automatically transfer?

Real Estate (2nd edition)

Cayman Islands Small Flag Cayman Islands

11.1 Yes – no formalities are required beyond the registration of the transfer of land. However, a lessee is afforded protection from a claim for non-payment of rent to the transferee to the extent the lessee has not received notice of the transfer.

11.2 Commonly transferors and transferees will enter into a formal assignment of leases where there are additional commercial terms between them.

France Small Flag France

Upon acquisition of the property, all occupational leases granted on the property are, as of right, transferred to the purchaser. The purchaser will, thus, automatically become the new landlord under the leases.

Germany Small Flag Germany

Yes – no formalities are required; leases transfer automatically at the time of registration of transfer of ownership in the land register. However, as transfer of title only occurs some weeks or months following closing (see Q9 above), leases are typically assigned at closing (as part of the SPA provisions for closing).

Hong Kong Small Flag Hong Kong

If the property transaction is effected by a share transfer and not an asset transfer, there is no change of registered owner holding the property and the benefit of any occupational leases and income remains the same.

If the property is sold as an asset transfer subject to a lease, the sale and purchase agreement normally will specify that the purchaser will assume all the rights, obligations and liabilities under the subsisting lease. A novation agreement should also be entered into to replace the purchaser as the new lessor who shall continue to receive the rental income after completion of the purchase of the property.

Hungary Small Flag Hungary

Yes, no formalities are required beyond the registration of the ownership change, but the tenants needs to be informed on the ownership change.

Spain Small Flag Spain

In general terms, occupational leases (and related income) are transferred with the sale of the commercial real estate, unless it is agreed otherwise in the lease agreement or if the buyer could demonstrate that it had no knowledge of the existence of the lease at the moment of the acquisition and pretends the termination of the lease based on such lack of knowledge.

India Small Flag India

Yes, unless the terms of transfer expressly provide to the contrary. Usually, notices calling upon lessees / tenants to attorn to the purchaser are served, post completion of the transaction.

Ireland Small Flag Ireland

Yes.

Russia Small Flag Russia

In Russia, by virtue of law, occupational leases and future rental income automatically transfer upon the sale of freehold interests in real estate.

However, this effect may be undesirable for the new buyer, as in some cases the buyer does not wish to have tenants in the purchased property. Still, under Russian law the buyer mandatorily becomes bound by any lease agreements that exist with respect to the real estate object, and may not generally terminate them until their expiration (unless the agreement contains a change of control clause or other special grounds for termination). In such cases due diligence has to be conducted to identify leasehold rights prior to the purchase of real estate. Long-term leases (over 1 year) are subject to registration in the public register, which significantly reduces the respective risks for the buyer. However, short-term leases (less than 1 year) at times cannot be identified in advance, but the purchaser will still be unable to forcibly eject the tenants from the purchased property until the expiry of lease.

Switzerland Small Flag Switzerland

Any lease agreement on the whole or part of the real estate, such as a lease of the entire building or office or parking spaces, is transferred to the buyer in case of the sale of such real estate. The lease agreement will continue with the new owner under the same terms and conditions, but the new owner is entitled to terminate the lease agreement for the next legal term, should the new owner be able to demonstrate an urgent need of such building for the conduct of its own commercial activities. In such case, an indemnity may be due to the tenant by the previous owner.

There are no specific formalities for such transfers. Any real estate lease agreement will be mentioned in the deed of sale and the parties will acknowledge that such lease agreement is transferred to the buyer with the sale of the real estate. Any rent will be due to the buyer as from the day of the registration of the deed of sale with the land registry, if no other date has been agreed between the parties in the deed of sale.

United Kingdom Small Flag United Kingdom

Yes – no formalities are required beyond the registration of the sale itself (see Q9 above for more details).

United States Small Flag United States

Yes. In the typical case, however, the seller and purchaser will execute a separate instrument assigning all of the leases that affect the property.

Peru Small Flag Peru

Yes, the transfer of real estate ownership entails the transfer of the collection rights on the proceeds of the leases or other interests over them. However, it is suggested to immediately communicate the acquisition to the tenants so that the rents are paid directly to the new owner.

In addition, the tenant is suggested to file with the Public Registries any lease and usufruct interests, among others, so that these rights are enforceable and, therefore, compulsorily recognized and observed by the new property owner.

Mexico Small Flag Mexico

Under Mexican civil law, lease rights run with the real property conveyance. In this case, tenant has a right of first refusal in case landlord decides to transfer the real estate over which the lease was created (unless such right is waived), and landlord must give tenant prior notice of the intention to sell in order to allow tenant to decide whether or not the right of first refusal is exercised.

As a general rule, the lease will transfer and subsist in the same terms of the original lease agreement, but now tenant shall pay the rent to the new owner, including unpaid rents. The new owner must notify tenant of the title transfer in order to have the right to demand and collect rent payments.

Italy Small Flag Italy

Upon transfer of a real estate property leased through a lease agreement (contratto di locazione), the purchaser automatically (and by operation of law) succeeds into the lease agreement in lieu of the seller, and the lease profits (i.e., rents) pertain to the purchaser as from the closing date.

Turkey Small Flag Turkey

In case of a change of ownership taking place after the conclusion of the lease agreement for any reason, the new owner becomes automatically a party to the lease agreement under Code of Obligations. ("Sale does not void rent” rule) However, the new owner of the real estate may terminate the lease agreement for necessity of owner’s spouse, first degree relatives, legally dependents and himself/herself. In such case, the new owner should send a termination notice within 1 month after the transfer and the new owner can terminate the agreement by filing a lawsuit after 6 months.

  • Rule of "Sale does not void rent” does not apply to the expropriation process.
  • Another issue about the rule of "Sale does not void rent” is if sale is realized after the lease agreement has been established but the tenant has not actually occupied the leased property, then subjective impossibility will arise and the former owner will be obliged to pay compensation to the tenant but the tenant will not be able to use the property due to the owner change.

Cyprus Small Flag Cyprus

When the immovable property being sold is occupied by a tenant, the Vendor has the obligation to inform both the tenant and the purchaser about this fact. If the tenancy is a tenancy protected by the tenancy tribunal law or if the tenancy period has not expired at the time the property is transferred to the purchaser, the purchaser will be obliged to respect the tenant’s rights under such tenancy.

Japan Small Flag Japan

Upon the transfer of the ownership interest in land, the contractual status of lease as to the land, including the right to rental income, is automatically transferred if the lease is registered, or if the lessee owns premises registered under their name on the land.

Obligations to return lease deposits to the lessee after the end of lease contracts are also automatically transferred upon the transfer of the ownership interest in land.

Thailand Small Flag Thailand

Yes. If there is a sale of real estate, the CCC specifically provides that a lease of real asset does not interfere with a transfer of such real estate ownership – the transferee therefore takes ownership subject to the occupational leases, without binding to specific provisions (if any) of such occupational leases. In practice, it is therefore advisable to arrange an addendum to the lease agreement acknowledging the change of the lessor, and agree additional terms (if any).

Greece Small Flag Greece

The benefit of any occupational leases and income automatically transfer on the sale of interests in land, unless otherwise agreed on the lease agreement.

Bulgaria Small Flag Bulgaria

The following applies:

  • If the lease contract has been entered into the Property register, it is binding for the buyer of the property for its entire term;
  • If the lease contract has a certified date (i.e. the date has been certified by a Notary public), its terms are binding for the buyer but for no longer than a year as of the transfer of ownership;
  • If the date of the lease contract is not certified, each of the parties can terminate it with a one-month notice. If the rent price is stipulated on a daily basis, the termination notice is one business day

In any case, if the lease contract is terminated prior to the agreed term, the lessor (the former owner) is liable for any damages to the lessee. Contractual clauses may envisage additional consequences with respect to the sale.

As to the question, who shall receive the rent price – the previous or the new owner, this is not expressly settled in the law but usually the new owner is entitled to receive the lease price after the transfer of the ownership. For avoidance of any doubts, the parties may agree on this aspect explicitly in the purchase contract and inform the lessee.

Concerning the agricultural land, there is a special act which regulates such leasing relations. If it is agreed in the contract, the legatees, respectively the legal successors of the lessee shall substitute the latter as party to the leasing contract. They shall be obliged to inform immediately the lessor about the substitution and to name their representative. The acquirer of the leased property shall substitute the lessor as party to the leasing contract, if it has been registered, even if the property has not yet been transferred. If the contract has not been registered it shall have effect regarding the acquirer for a period of two economic years after the year of acquiring.

Brazil Small Flag Brazil

Unless otherwise agreed under the transfer instrument, the new owner of the property shall be entitled to any incomes or rents related to the properties from the transfer date on. For said purpose, the relevant debtors must be notified of the change of ownership and informed of the new payment instructions.

Please refer to Section 15 with regards to lessor’s right of first refusal and to maintaining the lease in force further to the sale of freehold interests.

Sweden Small Flag Sweden

In principle, occupational leases based on written contracts automatically transfer to the new owner when a property or site leasehold is transferred. Oral usufruct rights or easements may not be automatically transferred if not registered in the land register prior to the sale. If a property is transferred indirectly by way of share transfer, no formal transfer of title occurs and all existing encumbrances will therefore survive the transfer.

Indonesia Small Flag Indonesia

The Indonesian Civil Code provides that a lease arrangement will not automatically terminate due to a sale of the underlying property, unless provided otherwise in the lease agreement. As such, the lessee has the right to continue as a tenant even if the owner of the property has changed. The Indonesian Civil Code is, however, silent as to whether the benefit of leases and income would automatically transfer to the new owner when the sale happens. On one reading, the fact that the new owner is obliged under the law to honour the rights of the lessee until the lease expires would imply that the new owner should be entitled to receive any remaining benefits from the lease. To avoid uncertainty, the treatment of any existing leases (including their remaining benefits) would typically be specifically regulated in the sale and purchase agreement between the seller and the buyer.

Updated: February 1, 2019