Common questions that arise when clients inherit or purchase rental properties/commercial real estate often center around the leases associated with the property. I came across one such question the other day that had to do with a client who had inherited an apartment complex and wanted to terminate the leases as quickly as possible in order to sell the property to a developer. Apparently, the land the complex was sitting on was worth significantly more than the rents the property would generate. Since the client’s ultimate goal was to sell the property as “tear down” the client was not particularly motivated to continue maintaining the property and was more interested in how to expedite the exit of tenants with substantial time left on their leases.
Under New Mexico landlord tenant law (and probably most, if not all, states), leases simply transfer to the new owner of the property. Upon the transfer of interest of a dwelling unit, whether by sale, inheritance, or otherwise, the new owner is liable for all obligations under the rental agreements that were in place at the time of transfer. The new landlord is subject to these leases, and really does not have any great options for terminating a valid lease agreement unless the tenant is somehow in breach of contractual or statutory obligations. For instance, if the tenant does not pay the rent, the landlord would give proper notice under the statute, and then perform the legal eviction process to have them removed. Assuming all of the tenants are all in good standing as far as rental payments and any other obligations under the lease agreements, the best option to terminate a lease early would be to negotiate buy-out with each of the tenants to get them to willfully leave. The tenant in this matter has a bit of the upper-hand because the landlord cannot do anything to force them out, but the landlord can offer them compensation to buy out their lease agreements.
Since the client/ landlord in this situation deemed it to be appropriate to buy-out all of the leases so he can otherwise dispose of the property, working with an attorney was a good idea. The attorneys working on the matter were able to communicate with all of the tenants and perform the associated negotiations.
What do I do?
For any landlord considering terminating leases early, it becomes a matter of cost-benefit analysis. Buying out leases won’t make financial sense in every situation. One should compare how much they stand to make if they bought out the lease agreements and sold the property as a tear down, versus maintaining the property through the life of the lease agreements. If a landlord does intend to maintain the property during the life of the lease agreements, the property should always be properly maintained and remain in good working order, as required of the landlord.
Contact us today if you are considering terminating a lease early and want to do it the right way.