Preexisting Leases: Definition & Implications

Instructor: Eileen Cappelloni

Eileen worked for the Orange County Asssociation of Realtors for 31 years. She has written real estate courses and exams for other publishing companies

What is a preexisting lease? What can be altered? This lesson will explain, as well as go over how private restrictions on real property and government regulations could affect both tenants and owners.

When the Property is Sold

John and Mary were approached by a friend who asked if they would be interested in renting a house in this great development they had always admired. Their friend, Marvin, explained that he had a lease there until the end of the year, but wanted to move to a larger place.

He related that the house has a new owner, and Marvin thought he would be interested in renting it out again. John and Mary were skeptical and asked Marvin to bring them a copy of his lease so they could have it reviewed by their attorney. Marvin thought they could just take over his lease.

What is a Lease?

A few basic things about a lease:

An enforceable lease is a written instrument that creates a legal interest in real property, but does not convey ownership.

  • The lessor is the owner who grants the right of occupancy and use
  • The lessee is the tenant who has been granted the right to use the property.

There are different kinds of leases for both commercial and rental property, some of which provide an option to purchase the property within a certain period of time and under specified conditions, and some address the possibility of subleasing the property to another.

In John and Mary's case, their lawyer advised them that:

A preexisting lease is one that is already in place, and then perhaps a buyer comes along and buys the rented property. The sale of a property typically does not change the existing terms for the current tenants.

A buyer inherits all of the original landlord's obligations and terms of the lease. The owner is obligated to allow the existing tenants to complete their tenancy as agreed to in their lease contract.

The owner can ask the tenants to move out before the lease expires, but the tenants are not under any obligation to consider it. Conversely, if the tenant wants to move out prior to the expiration date, they would be breaking the lease without the permission of the owner.

John and Mary are still willing to speak with the new owner and see if they could sign their own lease with her. Their lawyer advised them to do some research. John and Mary have a dog, and Mary works from home as a business administrator. They would need to learn what, if any, rules or regulations would apply to them.

Homeowners Associations' Rules and Private Restrictions

Although every American homeowner theoretically has the right to use their land and structure as they see fit, there are restrictions. In fact, they are quite common, particularly in planned developments and condominium associations, where reasonable restrictions on a homeowner's property rights can benefit the entire community.

Limiting or prohibiting rentals certainly is an example of a restriction of a homeowner's apparent rights, but it has been held up in court as sometimes being beneficial. Say Elisa is renting a condo with a lease he signed six months ago that won't expire for another six months. Then the homeowners' association amended their rules to prohibit rentals. Elisa can relax though, she can stay until her lease's ending date. There are also:

  • Restrictive covenants: provisions in a deed limiting or prohibiting the use of the property. These covenants are generally set to establish minimum house sizes, setback lines, and any general appearance standards. For example, Elisa may have to maintain attractive landscaping.
  • Liens: monetary claims against a property to secure an obligation or debt of the owner. If John and Mary buy a condo, and later fail to pay a creditor, that creditor could place a lien on their property to try and collect their fees.

Government Regulations

There are also laws and regulations at each level of government, i.e., federal, state, county and municipality. Each can curtail or at least restrict what you are permitted to do with the real property that you own or lease. The most common areas for possible violations and subsequent fines are:

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