The Factory You Rent Is Being Auctioned by the Bank: What a Tenant Can Do

Key Takeaways

• Find out early. A notice from the bank, a proclamation of sale or valuers visiting the factory are signs the property is heading to auction.
• Whether you can stay depends on the charge and your tenancy. The bank's charge is usually registered before your tenancy. A tenancy granted without the bank's consent may not bind the bank or the auction buyer.
• Read the proclamation of sale. It states whether the property is sold subject to a tenancy or without a guarantee of vacant possession.
• Your deposit is a claim against your landlord, not the buyer, unless the buyer agrees to take it over. A landlord in default may not be able to pay.
• Many buyers want a paying tenant. Talking to the bank and to bidders can turn an eviction risk into a new lease.

A factory tenant usually learns about an auction late: a letter addressed to the owner, a notice on the gate, or a stranger asking to look inside. This guide explains what is happening, what decides whether you can stay, and what to do. It is general information, not legal advice; get a lawyer to read your tenancy and the auction papers.

How a rented factory ends up at auction

When an owner stops paying the loan secured on the factory, the bank enforces its security. For a factory with its own title, the bank's charge is registered on the title and enforced under the National Land Code, usually through a court order for sale or the land office. For a property bought under a loan agreement and assignment, the bank can sell by private auction under the agreement. Either way, a proclamation of sale is issued with the auction date, the reserve price and the conditions of sale. You can watch factory auctions listed on BidNest to see whether your unit has a date.

Does the buyer have to honour my tenancy?

Three things decide it:

1. Which came first. If the bank's charge was registered before your tenancy, the bank's rights usually come first.
2. Whether the bank consented to the letting. Loan documents commonly forbid the owner from letting without the bank's consent. A tenancy granted with consent is in a much stronger position.
3. How the tenancy is protected. A lease of more than three years should be registered; a tenancy of up to three years can be endorsed on the title. An unregistered or unendorsed tenancy is still a contract with your landlord, but may not bind a later owner.

The conditions of sale in the proclamation then tell bidders what they are buying: subject to an existing tenancy, or with no guarantee of vacant possession. Our guide to buying an auction property with a tenant explains how buyers read the same clause.

What to do as soon as you know

• Get the auction papers. Ask the bank or its lawyers for the proclamation and conditions of sale, and check the date.
• See a lawyer with your tenancy agreement, stamping receipt and deposit receipts.
• Keep paying rent as your lease says until a lawyer tells you otherwise. If the bank or a receiver writes asking for rent to be paid to it, get advice before you change payee.
• Write to the bank stating that you are a paying tenant and are willing to continue under a new lease. Banks want a clean sale, and a tenant in occupation who is willing to sign with the buyer can help.
• Talk to bidders. A buyer of an industrial unit often wants income from day one. Some will agree a new lease before the auction.
• Protect your own assets. Your machinery, stock and fit-out are yours: keep them insured under your own policy, and keep records of what you installed.

Your deposit and fit-out

Your security deposit was paid to your landlord. Unless the buyer agrees to take it over, your claim for it is against the landlord, who is already in default. Some tenants offset the deposit against the last months of rent; do that only on legal advice, because withholding rent can put you in breach.

Fit-out you paid for, such as wiring, an office, a mezzanine or a TNB upgrade, may become part of the building. If you have to leave, the lease decides what you may remove. Plan early: a new factory with the right power, floor loading and crane takes time to find.

Frequently Asked Questions

Can the auction buyer evict me from the factory I rent?

It depends on whether your tenancy binds the bank and the buyer, which usually turns on the order of registration, the bank's consent to the letting and whether the tenancy was registered or endorsed. The proclamation of sale states whether the property is sold subject to a tenancy.

Who refunds my deposit if my landlord's factory is auctioned?

Your landlord, unless the buyer agrees to take over the deposit. Get legal advice before offsetting it against rent.

Should I keep paying rent when the factory is going to auction?

Keep paying as your lease says until a lawyer advises otherwise. If the bank or a receiver asks for rent, get advice before switching.

Can I buy the factory I rent at the auction?

Yes. A sitting tenant can bid like anyone else, and knows the building better than other bidders. Check the reserve price, the conditions of sale and your financing before the auction date.