Tymofii Sykorskiy commented on how to protect the lessee in case of renting mortgage property

31.10.2019

According to article 770 of the Civil Code, in case of change of ownership of the thing transferred by the lease, the rights and obligations of the lessor are transferred to the new owner (unless the parties expressly agreed otherwise). But lease of a mortgaged real estate always carries additional risks for the lessee. This is primarily due to the possible change of owner as a result of the collection of the mortgage and his unwillingness to continue lease. The lessee cannot influence this process, but the new owner has a lot of means on how to force the lessee to leave the leased object. Therefore, at the stage of agreeing on a draft contract, the lessee must assume the worst case scenario and make appropriate clauses in the draft. I can recommend the following provisions:

∙ priority right to lease for a new term;

∙ priority right to purchase a leased asset;

∙ automatic renewal of the lease;

∙ exclude the possibility of adjusting rental rates unilaterally;

∙ carefully write out the procedure and conditions for lessee to access the leased object and the procedure for its maintenance.

Finally, it is highly desirable to provide for real responsibility and an effective mechanism for its implementation in case the lessor does not comply with the terms of the contract.

Source: Yuridicheskaya Praktika, #44, October 29, 2019