MEbiz Real Estate Insider – Real Estate Magic: Memos of Lease
Every once in a while, among the dusty and dormant documents hidden in ME’s 18 registries of deeds, an occasional magic scroll comes to life. One of the more magical documents is the often forgotten Memorandum of Lease. This document is the one that states important facts such as the term of the lease, the property affected and any renewal or option rights held by the tenant. Without it, your lease could go “poof” and disappear.
Here’s the rule every commercial tenant should remember about memos of lease: make sure your landlord signs this simple document and make sure you get it recorded in the registry of deeds. Here’s why:
Your lease can do a real disappearing act without one.
If you don’t record a memo of lease, a subsequent owner of the property who becomes your new landlord (perhaps a foreclosing lender) may not have an obligation to recognize your lease and could kick you out. Yes, you could lose your lease, and while it’s unlikely it is possible. Recording documents in the registries of deeds puts the world on notice of the existence and contents of that document. If it isn’t recorded, no one is on legal notice of the lease other than people who actually know about it first-hand or who the law thinks ought to have known about it when they bought the property. ME law tells us if you are a buyer and don’t know about a real estate interest affecting your new property because it is off-record (like an easement or lease), then you’re not bound by it. If a memo of lease isn’t recorded to provide legal notice, a buyer who didn’t inspect the property could successfully argue that they never knew about your lease and thus isn’t bound by it.
A good real estate magician never reveals tenant secrets.
Recording a memo of lease in the registry does not expose your full lease terms to the public. Tenants are not required to include rental or other financial terms or special concessions from landlords. There may be reasons for doing this (i.e. a tenant exclusive), but typically confidential landlord and tenant information does not get published in the registry.
By the magic of telepathy.
Thanks to the Recording Act, new landlords are deemed to know the deal. When a memo of lease is recorded, new landlords are on notice of all terms of the lease even if they have never actually read it. That seems inconsistent with the point made above, but that is what the law says. For example, a new landlord who didn’t read or even see the lease can’t argue that they’re not aware of the deal in your lease if the tenant has recorded a memo of lease. The law says once a memo of lease is recorded, “the lease shall be considered recorded for all purposes…as if [it] had been recorded in full.”
Buyers can’t escape from the handcuffs of valuable tenant rights.
A tenant’s option to purchase or renew is protected by recording a memo of lease that identifies the tenant’s right(s). If a tenant were able to negotiate a valuable, below market right to purchase the building it is in or to extend the lease (even merely referencing the existence of an option or right to renew in the memo), then the right is protected and binding as to the new landlord. Otherwise, if no memo of lease is recorded or the option or renewal is not mentioned, that right could be lost when the property changes hands. The new buyer could miraculously escape the obligation leaving the tenant to wonder how it happened.
The basics about memos of lease:
- They don’t protect you from foreclosure by a lender who was there before you. The proper document for that is called a “non-disturbance” agreement.
- They are unnecessary if your lease terms are less than two years
- Always have the landlord sign. Have their signature acknowledged by a notary or ME lawyer (if you have more than one landlord, only one must sign).
- Tenants need not sign a memo of lease
- Memos of lease will not allow you to catch bullets with your teeth or survive being cut in half
Magic? Maybe not in every case. If you’re a tenant with a valuable leasehold, a recorded memo of lease is critical to the success of your business and could save you from losing your rights.