On Nov 2, 2:56 pm, David Chesler <ches...@post.harvard.edu> wrote:
> > > If a landlord borrows against a property, or otherwise suggests
> > > he can deliver it free of tenants, is this any different than his
> > > representing that he owns a certain bridge and is offering it
> > > for sale?
>
> > Not if he in fact does have the right, in law, to clear out the
> > tenants upon sale.
>
> Let me phrase it differently. If a landlord offers a tenant a
> one-year lease that does not have a terminate on transfer
> clause, and in fact contains a successors clause, and yet
> has an earlier mortgage, or subsequently obtains a mortgage,
> how is his dealings with the tenant different from selling a
> bridge he doesn't own? (After all, a careful check of
> the land records would have shown that he doesn't
> own the bridge.)
It's different because he _is_ the owner, and the tenant is just a tenant and the lender is just a lender. Being the legal owner carries with it the legal right to exclusive possession and use of the property, either for his own occupancy or by charging rent to other users and occupants; but being the banker (even one who actually may have a bigger share of the equitable ownership in the property than the landlord does) does _not_ carry that right to charge rent. All the bank is entitled to do, is to get their mortgage check every month from the owner, whether or not he has rented it to tenants -- and to foreclose if that obligation is not met, at which point the bank (or the person they sell it to on the courthouse steps) will become the new legal owner. If it is a property intended to be leased out, the bank probably even prefers that the tenants remain there and continue to pay rent, rather than have it unoccupied and not bringing in any revenue.
Your "Brooklyn Bridge" example fails as an analogy because the scammer attempting to sell an ownership property interest in the bridge actually does _not_ legally have the right to charge anyone tolls, or rent, for using the bridge (which, IIRC, was the way this scam was typically pitched to greenhorns as a moneymaking proposition) because he doesn't actually own it. The landlord does. It's as simple as that.
Maybe I'm just being dense, or overlooking something obvious. Or I'm not reading enough sinister intent into landlord's devious act of obtaining a mortgage on the tenanted property, to see what you're getting at (since I know that you love to play Devil's Advocate, David). But there's nothing sinister about it - isn't that pretty much what usually happens? I mean, very few landlords own their property outright; they have to take out a mortgage to purchase it, or they refinance somewhere along the way, and neither of those events -- whose full carrying out to the bitter end typically takes decades -- should, in the ordinary course of dealings, matter one whit to the short term residential tenant, who should only care that he has the use and possession of the leased space for the duration of the lease, not whether the guy in the fedora who usually collects the rent, or the bank he borrowed the money from to buy the building, have the priority to collect that rent from him in the event of foreclosure.
When a leasehold is being run as a moneymaking business, everything is hunky-dory for everyone -- owner, lender, tenant, and future purchaser. The owner buys the property at a price which, as a business investment, will yield him a certain predictable percentage rate of return on his capital investment by charging rent(s) that add up to an amount a little bit higher than the amount he has to pay each month to service his debt, and his variable and fixed monthly operating expenses (hiring a super, gardener, etc. for routine maintenance as well as repairs, insurance, etc.). The lender decides how much money it is willing to lend on this collateral based in large part on the total expected revenues the landlord can reasonably anticipate, in the current local market, to generate from leasing the property. (This is unlike the way lenders, and buyers, evaluate owner-occupied residential real estate whose market value often varies for other reasons than its investment income potential.) And the tenant gets a leasehold made available to him (when, presumably, he would find it difficult or impossible to actually buy a place under his circumstances, or simply doesn't want to make that kind of long term commitment) that provides his expected level of accomodations (class A, B, etc. on down) at a rental price that is, hopefully, competitive with whatever else the current local market has to offer. Everybody wins.
If the owner decides to sell, the prospective buyer will evaluate the property on the same basis as the seller and lender did, taking into account of course that market conditions may have changed during the period of time the seller owned it, and as a result, the rates for new leases may make a sudden jump after the change of ownership (putting aside such arcane things as rent control); but it is in everyone's interest, the seller, the lender, and the new owner, that the existing tenants in the building stay there and keep paying their rent on their existing leases, at least until their leases naturally expire, because otherwise the new owner has no present income stream with which to pay the lender and avoid foreclosure of his interest in the property.
Now, if the situation is such that the landlord is _not_ charging enough rent to actually make money on the deal, which can happen for various reasons including change in market conditions, rent control, deterioration of the property due to inadequate maintenance, maybe then you will see some tenanted properties being sold or "given up" in foreclosure scams to drive out the old tenants and jack the rent up several notches. Or maybe the new owners decide to convert the building to a cooperative or condominium, in accord with local laws on the subject. But if some tenants wind up getting screwed, the basic reason is the same one I mentioned in my earlier post in this thread, the mercantile version of the Golden Rule -- them what has the gold, makes the rules. Except in the rare instances where progressive social legislation has given the little guys a local advantage in a specific narrow situation, that's the way it's always been and probably always will be in the commercial world.
--
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Mike Jacobs
LAW OFFICE OF W. MICHAEL JACOBS
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