09
Jul2018

Landlord Loses Commercial Real Estate Action for Rent Accruing Before it Purchased the Property

To determine property value, tenants want to know how consistently tenants pay rent. If they miss payments, tenants want to know how much they owe. This information is important to buyers, so they can decide what to do about it. According to a recent case, simply buying commercial real estate does not give the purchaser any right to rent that wasn’t paid before the purchase.

This could have been handled in the real estate contract or a separate agreement transferring account receivables to the purchaser. If there was a substantial arrearage, a discount to the purchase price perhaps could have been negotiated.  Here, however, there was no lease provision or separate contract transferring the right to tenant arrearages. If a tenant estoppel letter had been obtained, the tenant would have to explain the claim.

Most building purchasers get an estoppel letter from the tenant or tenants for that reason. The majority of commercial leases require a tenant to respond to their landlords’ requests for estoppel letters. There was no mention of one in the opinion.

Because the tenant had claims or defenses against the landlord for failure to comply with its maintenance obligations, the building’s seller may not have wanted to start a lawsuit to collect the back rent.  It might also be the reason why the seller decided to sell the building.

The buyer may have bought the building cheap and then, when it saw the arrearages, started a lawsuit on the theory that anything collected would be “found money.”  By not securing an assignment of the rents or purchasing the receivables, it ended up with a business lawsuit that “lost money,” if it paid its lawyers for filing the litigation.

If you have questions about commercial real estate litigation, call us at (312)-223-1699 or click here.