Hello,

I'd say unless they were told in the contract that they couldn't, then they could. It kind of sucks, but should be ok. They still have to manage the property as if you will fail to close.

I would say it's almost certain you can review and reject or modify your contract.

That is a major change in how you will be able to operate and/or manage the property. It's like buying it with a central AC unit only to find they went and removed it after the contract was signed.

The lease signed by the seller endures until its expiration, beyond the sale. Sorry. The lease is an encumbrance on the property and you have to accept it or else default on your contract to buy.

Its your own fault. You should have ascertained if there are any encumbrances on the title before offering to buy (or made your offer contingent on unknown encumbrances). Did you have any professional (attorney, licensed RE agent, buyers agent) to work with you on the purchase? They should have known better, and to have had a title search performed and including provision of estopple certificates to indemnify you from any further claims.

In Pennsylvania, a title search won't show a lease ... not sure how it would in California either.

Is it rented at market value?

Were you planning to move in, and if yes, were they aware of it?

Regardless of whether the lease was recorded or not, it is still an encumbrance on the property. The owner of the property is obligated under the terms of the lease, regardless of whether a title search informed him of the encumbrance or not, before or after the purchase.

A title search will only show encumbrances that were recorded against the title, and thus are to be considered as common public knowledge, and thus are considered purchasers responsibility to know about. While a lease MAY be recorded against the title, it is still binding (a lease for real property runs with the title) on the owner whoever he is.

Therefore, it is necessary for a potential purchaser to secure his own knowledge of what he is buying before the sale has closed, in fact, even before he makes an offer. A title search should reveal encumbrances which are publicly recorded, and thus are subject to the purchaser's own due diligence. The buyer needs also to obtain assurance from the seller that there are no further encumbrances, and that is where the estopple certificates come in. A landlord who purchases a property with a provable life estate promise (even a verbal promise with witnesses) could turn out to be very disappointed. Professional assistance can be worth the cost.