On the sale of interests in land does the benefit of any occupational leases and income automatically transfer?
Yes unless there are express restrictions in the leases which would be unusual. The terms of the lease should always be fully investigated to ensure that the benefit of covenants are not personal e.g. a right of first refusal.
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 was 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 the tenant of the title transfer in order to have the right to demand and collect rent payments.
If the ownership of real estate that is leased out is transferred, the position as lessor transfers automatically to the new owner, as a result of which in principle the benefit and income transfers to the new owner. However, provisions that are not considered inextricably linked to the lease might not transfer automatically dependant on the content of such provision. For such provisions, contract take-over might be required.
In asset deals, as a dominant main rule all benefits are transferred to the new owner. However, encumbrances may be exclusively connected to a person rather than the property. Thus, the new owner may not be entitled to benefits after transfer of the property.
Yes, the purchaser of real estate may benefit from the lease agreement concluded by the former land owner with a third party tenant, unless the lease agreement provides a change of ownership clause which may be exercised by the tenant upon sale of the real estate.
The purchaser is also obligated to honour all leases registered in the land book or, in the case of agricultural land, in the agricultural registry.
Russian law treats a lease as an encumbrance that follows the land/ property it encumbers, so if land is sold, the existing leases survive. The new land owner replaces the previous landlord towards tenants. In other words, occupational leases and, consequently, rent automatically transfer to the new land/ property buyer.
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.
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.
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.
In the event of sale of properties that are leased, the owner must at first comply with the tenant’s right of first refusal of the purchase (which is a statutory right) and offer him/it the property. If the tenant refuses it or remains silent, the owner may continue with the sale to a third party and, as soon as said transaction is completed, an amendment to the lease agreement must be executed to contemplate: (i) transfer of the real property, (ii) exclusion of the owner from the lease agreement, and (iii) inclusion of the acquiring third party as the current owner of the property and a party to the lease agreement.
After it has been accomplished, the rents must be paid by the tenant directly to the acquiring third party. In practice, such procedure is not always complied with, but it is the correct way to avoid the risk of doubts, charges or ungrounded challenges, including under the taxation perspective.
Yes. In the typical case, however, the seller and purchaser will execute a separate instrument assigning all of the leases that affect the property.
Yes – no formalities are required beyond the registration of the sale itself (see Q9 above for more details).
If the seller of the property has concluded a lease contract for the property and before its expiration the ownership is transferred, the legal consequences from the sale with respect to the lease depend on the type of the lease contract:
- If the lease contract has been entered into the Land register, it is binding for the buyer of the property for its entire term;
- If the lease contract has a verifiable date (in cases when the date has been certified by a notary official), 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 verifiable, then 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 term it has been concluded for, the lessor (the former owner) is liable for any damages to the lessee. Contractual clauses may envisage additional legal 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 and thus the parties need to agree on it explicitly in the purchase contract and inform the lessee.
As far as an agricultural land is concerned, there is a special act which regulates the leasing relations in agriculture. If it is agreed in the contract, the legatees, respectively the legal successors of the lessee shall substitute him/her/it 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 subject of the contract shall substitute the lessor as party to the leasing contract, if he 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.
Upon acquisition of the property, all occupational leases granted on the property are legally transferred to the purchaser so that the purchaser will automatically substitute the seller acting as landlord under the leases and will become sole owner of their benefit.
Yes – no formalities are required beyond the registration of the sale itself (see Q9 above for more details). However, as transfer of title only occurs some weeks or months following closing, the lease assignment is provided as of closing.
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 remain 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. 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.
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.