What Happens to Commercial Real Estate Leases When a Property Is Sold?

In Massachusetts, commercial real estate transactions often raise an important question for both landlords and tenants: What happens to an existing commercial lease when a property is sold? The short answer is that the lease typically remains in effect, and the new owner takes over the role of landlord. However, the legal framework around this transition includes several key considerations for all parties involved.

The Lease Follows the Property

When a commercial property is sold, existing lease agreements are usually assigned to the new owner. This means the buyer “steps into the shoes” of the seller and assumes all of the landlord’s rights and obligations under the lease. Unless the lease explicitly provides otherwise, the sale does not terminate the lease, and the tenant continues to occupy the premises under the original terms. Rent is simply paid to the new landlord.

This aligns with the legal principle that a tenant’s rights under a lease generally take priority over the rights of a subsequent purchaser. Massachusetts courts have long recognized that, absent an agreement to the contrary, the tenant’s right to possess and use the space persists post-sale.

No Consent Required, But Notice Should be Provided

A commercial tenant’s consent is not typically required for the transfer of the lease to the new owner. Many lease agreements include a clause affirming the landlord’s right to sell, but even absent such a clause, the landlord is generally free to transfer the property without the requirement of tenant’s consent.  That said, buyers of a property should (and are often required to) provide written notice to tenants after a sale, informing them of the change in ownership, where to send rent payments, and who to contact with questions or maintenance requests.

Recording a Notice of Lease in Massachusetts

In Massachusetts, commercial tenants—especially those with long-term leases—should carefully consider recording a notice of lease (also known as a memorandum of lease) at the appropriate Registry of Deeds. This document serves as a condensed version of the lease and is intended to give constructive notice to third parties, such as future buyers or lenders, of the tenant’s rights in the property.

A notice of lease does not disclose sensitive financial terms, such as rent amounts or operating expense details. This allows parties to protect confidential business information while still placing the world on notice of the lease’s existence and core terms.

While recording a notice of lease is generally permitted for any commercial lease (unless prohibited by the terms of the lease), it is particularly important for leases exceeding seven years. Under Massachusetts General Laws Chapter 183, Section 4, a notice must be recorded for any commercial lease that extends beyond seven years—including any renewal or extension options that are unilaterally exercisable by the tenant—in order for the lease to be valid against subsequent purchasers or encumbrancers without actual knowledge of it.

Even for leases with terms of seven years or less, recording a notice is often a prudent measure that strengthens the tenant’s legal position and safeguards their interest in the property.

Potential for Negotiation

While existing leases remain legally binding and survive the occurrence of a sale, new owners may seek to renegotiate terms or propose a lease buyout. A transfer in ownership of a property may be a fruitful time for both landlord and tenant to renegotiate an existing lease.

Special Lease Provisions

Some leases include a Right of First Refusal (ROFR), giving tenants a chance to purchase the property before it is sold to a third party. This provision can significantly impact the sale process (and property value) and should be carefully considered by landlords in entering into new leases and buyers exploring a potential acquisition.

Conclusion

In Massachusetts, a commercial property sale does not cancel existing leases. Instead, the lease typically survives the transfer, and the new owner assumes the landlord’s duties. Both buyers and tenants should understand their respective rights and responsibilities during this transition. Buyers must perform careful lease reviews, and tenants should ensure long-term leases are properly recorded.

As always, consult with a commercial real estate attorney to navigate the complexities of lease transitions during a property sale. Every transaction is unique, and legal advice tailored to the specific circumstances is essential.