Question: We leased space in a small shopping center for our pet grooming business. We wanted to make tenant improvements in the back area of our leased space totally approximately $25,000. Before making the improvements, we learned that the shopping center was in foreclosure, so we contacted the lender (a national bank) and explained to them that we wanted to make the tenant improvements, but were not going to if we were going to be evicted after foreclosure. The lender’s representative said that our lease would be honored after the foreclosure, and that a longer lease could even be negotiated. However, an investor purchased the shopping center at the foreclosure and delivered a notice of eviction to us. Do we have any commercial property tenant rights to stay in our leased space now? If we are evicted, does the investor have to pay us $25,000 for our tenant improvements?
Answer: Under a 2009 federal law, a residential tenant generally has the right to stay in the home after foreclosure until the end of the lease term. A tenant in a shopping center or other commercial property, however, has no such right, and is subject to eviction after the foreclosure unless there is non-disturbance or similar language in the lease. The purchaser at a foreclosure sale, such as the investor who purchased your shopping center, has the right to evict the tenant, and has no obligation to reimburse a tenant such as you for any tenant improvements. If you can prove, however, that you relied on the statement by the lender’s representative that you would be allowed to remain in your leased space after the foreclosure, you should have a claim against the lender for at least the $25,000 in tenant improvements.
Note: You should immediately contact an Arizona commercial property attorney to review your lease to see if there is non-disturbance or similar language that will allow you to stay in the shopping center after the foreclosure.