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Many commercial leases contain a provision either permitting or prohibiting the parties from recording a Memorandum of Lease. Although a Memorandum of Lease is not the most complex aspect of any lease, it may provide crucial protection to certain renters.
When recorded with the Register of Deeds, a Memorandum of Lease provides constructive notice to third parties (such as lenders, other tenants, and potential buyers) of the tenant's interest in the leased property. This is particularly important where the tenant's presence is not easily visible. For example, if a lease is signed prior to opening for business, recording the document protects the tenant's rights during the time between signing and taking possession of the property.
A Memorandum of Lease may also offer added protection to tenants with rights enforceable against third parties, such a right of first refusal or the exclusive right to use the property for a particular purpose. Restrictive covenants such as these are enforceable against third parties with notice of the covenant’s existence. A convenient way for a tenant to notify third parties is to include these rights in the Memorandum of Lease.
A recorded Memorandum of Lease is an encumbrance on title, so it's important for landlords to proceed with caution. Landlords should require a unilateral termination right that allows the landlord to terminate the document without the tenant's signature after the lease term has ended.
Not every lease requires a Memorandum of Lease. A landlord may scoff at a demand with a short-term rental for a small portion of the building. However, tenants with long-term leases, rights of first offer or first refusal, purchase options, or exclusive use provisions should consider negotiating for a Memorandum of Lease that protects their interests.
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