How to Change the Landlord or the Tenant in a Lease Agreement?

1. Introduction

When circumstances arise requiring a change in the parties of a lease agreement, understanding the procedures is important to protect the rights of all parties concerned. Whether due to changes in property ownership, the need for a tenant to transfer their lease or sublet the property, or other factors, the process of changing the involved parties in a lease agreement demands careful consideration and adherence to legal requirements. In this guide, you will learn the steps involved in changing either the landlord or the tenant in a lease agreement and the reasons for the same.

2. How can the landlord be changed?

The change of the landlord may arise due to one or more reasons which are outlined below. The existing lease agreement (which may either be residential or commercial) should first be reviewed to understand any specific clauses related to the assignment or transfer of the lease. Look for the provisions in the agreement that outline the requirements that come with the change of landlords. For instance, if there is a clause relating to the change in ownership of the leased property, then the current landlord is required to ensure that the tenant will follow the same. Another example is if the change in ownership requires the deposit of a new security deposit or to transfer the same, the tenant also has to adhere to that specific obligation.

2.1 What could be the reasons for the change of the current landlord?

The current landlord needs to communicate with the tenant regarding the change in the ownership and management of the leased property. The current landlord must explain the reasons for the change which may include but are not limited to the following:

Sale of the Leased Property. The most common reason for a change in landlord is the sale of the leased property. When a property changes ownership, the new owner becomes the landlord, and existing leases typically transfer to the new owner.
Transfer of Ownership. The transfer of ownership doesn't always involve a sale. It could be due to inheritance, donation, or any other legal transfer of property rights. In such cases, the new owner becomes the landlord and existing leases also apply. Further actions to ensure the validity of the transfer of ownership between the current landlord and the new landlord are further explained in section 2.2.
Property Management Changes. If a property is managed by a professional property management company, there may be changes in management over time. In such cases, the property management company becomes the landlord for lease-related matters.
Corporate Changes. If the property is owned by a corporation and there are changes in corporate structure, such as mergers or acquisitions, it may also result in a change of landlord.
Foreclosure. In some cases, if a property goes through foreclosure, the ownership of the property may transfer to a new owner, which can lead to a change in landlord. Foreclosure is a legal process by which a creditor of the landlord attempts to recover the amount owed due to an unpaid loan by taking the leased property that is mortgaged and selling it.
Death of Landlord. In the unfortunate event of the death of the landlord, the property may be passed on to heirs or designated beneficiaries, resulting in a change of landlord.
Legal Reasons. There might be legal reasons, such as court-ordered transfers or changes in property ownership due to legal disputes or settlements.
Mutual Agreement. In some cases, landlords may choose to transfer their leasing responsibilities to another individual or entity with the tenant's consent and for reasons that are mutually agreed upon.

It is worth noting that with the aforementioned reasons for the change of landlord, the tenant is commonly notified of the same and the tenant needs to be reminded that he is still protected by the terms and conditions of the existing lease agreement regardless of the change or modification in the ownership of the leased property. In any case, the steps mentioned below should be observed to protect the interests of both parties.

2.2 What are the steps to change the landlord?

2.2.1 Identify the new landlord:

The tenant must know who the new landlord will be. This could be an individual or a company. The current landlord must ensure that the new landlord is willing to accept the responsibilities outlined in the lease. But as mentioned in the previous section, the tenant is protected by the existing lease agreement so long as the same is still in effect.

The tenant generally has no right to object to the change of ownership of the leased property, unless there is a provision in the lease agreement that allows this. In any case, if the tenant does not want to rent under the new landlord, he can arrange for the termination of the lease agreement if allowed under the lease agreement or if approved by the current landowner.

2.2.2 Option to prepare a written agreement:

A written agreement may be made between the current landlord, the new landlord, and the tenant. This agreement should clearly outline the terms of the lease assignment, including the effective date of the change, the responsibilities of the new landlord, and any other relevant details. A Contract Assignment Agreement may be used for the current landlord to assign the duties and responsibilities under the lease agreement to the new landlord.

It must be noted that even with the absence of a Contract Assignment Agreement or some other agreement, the new landlord continues to be bound by the existing lease agreement.

2.2.3 Registration of the new landlord's title:

If there is a transfer of ownership of the leased property whether by sale, donation, inheritance, or some other legal mode of transferring ownership, the current landlord must ensure that the title is transferred in the name of the new landlord and submit the necessary documents for registration before the Register of Deeds. The common requirements to validly register the transfer of ownership are as follows:

Notarized deed. This is the agreement between the current landlord and the new landlord showing how the title to the property is transferred. This may be a deed of sale, a deed of donation, or any other contract or document showing how the transfer was made.
Tax declaration. This document shows that the real property taxes are paid and settled by the landlord or the owner of the real property.
Barangay clearance. This is a document that is obtained by the current landowner from the barangay concerned which could show that he owns the property.
Payment of the necessary taxes incidental to the transfer of ownership. This may require a clearance from the Bureau of Internal Revenue after paying the proper taxes such as Capital Gains Tax and Documentary Stamp Tax.

2.2.4 Update lease records:

The parties must ensure that all lease records are updated to reflect the new landlord's information. This includes updating contact details, payment instructions, and any other relevant information. This can include the use of Lease Amendment Agreement to update the details concerning an existing lease agreement. Copies of the updated lease agreement should be provided to all parties involved. This helps avoid any confusion and ensures that everyone has a clear understanding of the changes.

3. How can the tenant be changed?

The change of a tenant may be accomplished through an assignment of lease or a sublease. Assigning a lease and subleasing are two different arrangements in the context of a lease agreement, and they involve distinct legal and practical implications. The key differences between an assignment and a sublease are as follows:

3.1 Sublease:

In a sublease, the original tenant remains responsible for the obligations stated in the original lease agreement. The new tenant, known as the sublessee, pays rent and complies with the terms of the sublease, but the original tenant is still ultimately responsible to the landlord. The sublessee does not have a direct relationship with the landlord. Instead, they deal with the original tenant (sublessor) who, in turn, deals with the landlord.

Many lease agreements require the landlord's consent for subleasing. The landlord may have the right to reject a proposed subtenant if certain criteria are not met through a Landlord's Letter Denying a Sublease.

3.2 Assignment:

In an assignment, the original tenant transfers both the rights and responsibilities of the lease to a new tenant. The original tenant essentially gives up their position as the primary tenant, and the new tenant assumes all the obligations under the original lease agreement. After the assignment, the new tenant has a direct relationship with the landlord, and the landlord generally must recognize and deal directly with the new tenant.

The original tenant is usually released from any further liability under the lease after the assignment is completed.

Subleasing may offer more flexibility to the original tenant because they can reclaim the property after the sublease term, whereas an assignment often involves a more permanent transfer of the lease. Both assignments and subleases may require the landlord's consent, as many leases have clauses specifying the conditions under which such arrangements are allowed.

3.3 Landlord's approval:

The landlord's approval is crucial for the tenant change to be valid and binding between the parties. The absence of the landlord's approval can result in the invalidity of the sublease or assignment. The approval may be obtained in the following manner depending on whether the change is due to a sublease or an assignment:

3.3.1 Sublease:

The information about the new tenant must be provided such as their rental history, employment status, and any other relevant details to assure the landlord of their suitability. For this purpose, a formal letter called Letter to Request the Landlord to Sublease a Property may be used. If the landlord approves the sublease then a Landlord's Consent to Sublease may be used to formalize the agreement.

If the property is residential, a separate agreement between the tenant who will become the sublessor, and the sublessee may be in the form of a Residential Sublease Agreement. This is a binding contract where the sublessor surrenders the control and possession of the property for residential purposes in favor of the sublessee for a fee.

3.3.2 Assignment:

Once the approval of the landlord is obtained by the tenant, an Assignment of Lease Agreement by the Lessee may be used by the tenant to assign or transfer the lease of the property such as land or building in favor of the assignee. The assignee then becomes the new tenant of the leased property subject to the terms and conditions of the said document.

3.4 Other considerations with a change of tenant:

The following must also be considered if applicable under the lease agreement:

Transfer Security Deposit. If applicable, the security deposit must be transferred from the current tenant to the new tenant. This might involve refunding the deposit to the current tenant and collecting a new deposit from the new tenant or some other arrangement that is acceptable to all the parties concerned.
Inform Utility Companies. The parties must ensure that utility companies are advised of the tenant change to ensure a smooth transition of utility services such as that of the Meralco. This may include electricity, water, gas, and internet services.
Keep Documentation. The parties must keep copies of all documents, including the new lease agreement or addendum, the request letter, and any communication with the landlord.

4. Conclusion

In conclusion, a change of landlord can occur for various reasons, and tenants need to be aware of the specific clauses in their lease agreement related to such changes. This may involve procedures outlined in the agreement, such as the transfer of ownership or deposit obligations. Reasons for changing a landlord can include the sale of the leased property, transfer of ownership through inheritance or donation, property management changes, corporate changes, foreclosure, death of the landlord, legal reasons, or mutual agreement between parties. In any case, tenants are typically notified of the change, and it's emphasized that they remain protected by the terms of the existing lease agreement. To ensure the rights of the tenant are safeguarded during a change, the steps include identifying the new landlord, preparing a written agreement, registering the new landlord's title, and updating lease records.

To facilitate a change in tenant, two methods are highlighted: sublease and assignment. In a sublease, the original tenant retains responsibility for lease obligations, acting as an intermediary between the subtenant and the landlord. In an assignment, the original tenant transfers both rights and responsibilities to the new tenant, who then deals directly with the landlord. The landlord's approval is crucial in both scenarios and may require submission of relevant information about the new tenant. Other considerations during a tenant change include transferring security deposits, informing utility companies, and maintaining thorough documentation of all relevant agreements and communications.