Colorado-Real-Estate-Journal_410621

Page 8 — Health Care, Senior & Life Sciences Quarterly — July 2024 www.crej.com HEALTH CARE – NOTICE OF LEASE A memorandum of lease (also known as a notice of lease) is a concise, recordable instrument used to inform third parties of an existing leasehold interest in real estate. A memorandum of lease summarizes key details of an underlying lease agreement, including: the parties’ names and addresses, a description of the leased premises, the lease term and a description of any terms that may impact title to the real estate, such as purchase options or extension options. Typically, a mem- orandum of lease does not disclose confidential or proprietary infor- mation pertaining to the financial aspects of a lease. State and local laws provide information about what should be included in a memorandum of lease to create an effective and record- able document. Typically, these laws mandate that a memorandum of lease be signed and notarized by both the landlord and tenant. Once properly executed, the memoran- dum of lease is recorded with the local register of deeds office, similar to how a mortgage or deed of trust is recorded. This recording places the memorandum in the property’s chain of title, providing construc- tive notice of the tenant’s rights and interests in the leased prop- erty. Recording a memorandum of lease is crucial, as failing to do so can expose the tenant to risk from potential adverse title changes without their knowledge. n Protecting your rights. The importance of recording a memo- randum of lease varies from state to state. In the United States, approxi- mately, 17 of the 50 states have a recording require- ment surrounding leases. For exam- ple: • In North Caro- lina, buyers of property are not bound by leases of longer than three years unless a notice of lease has been recorded. G.S. § 47-18. • In Maryland, leases with terms of more than seven years are not enforceable by a tenant unless a notice of lease is recorded. Md. Code Ann., Real Prop., § 3-101(a) (2023). • In Indiana, no later than 45 days after lease execution, a lease with a term longer than three years must be recorded or a memorandum of lease must be recorded or the lease is void against any subsequent pur- chaser, lessee, or mortgagee. IC Sec- tion 32-31-2-2. • In Florida, leases with a term of one year or more are not enforce- able against any creditors or subse- quent purchasers unless a notice of such lease is recorded. Fla. Stat. § 695.01. In many other states, the record- ing of a memorandum of lease is not required by law. n Colorado. In Colorado, a memo- randum of lease does not need to be recorded to protect the ten- ant against junior third-party claims because, under Colorado law, third parties are gener- ally deemed to have constructive notice of parties in possession of real property, including tenants. (Cohen v. Thomas & Son Transfer Line, Inc., 586 P. 2d 39, 40-41 (Colo. 1978)). How- ever, it is the best practice, if not customary, for par- ties to a lease to record a memoran- dum of lease. Also note, in Colorado, if the land- lord or tenant is an entity or a trust, the best practice includes recording a statement of authority for each entity or trust to evidence existence and authority of the entity or trust. See Colo. Rev. Stat. Ann. § 38-30-172. Colorado Code Colo. Rev. Stat. Ann. § 28-25-101(2) provides short forms of acknowledgement certificates. n Updating and terminating. Once a memorandum of lease is recorded, it is essential to update it whenever changes are made to the underly- ing lease. For instance, if the lease term is modified, a renewal option is added or an exclusive use right is granted, the parties should record an amendment to the origi- nal memorandum to reflect these updates. Just as tenants will request a memorandum of lease be recorded to protect their leasehold interest, it is equally impor- tant for landlords to execute and record a termina- tion of a memoran- dum of lease, when applicable, to avoid a cloud on title. n Practical take- aways. • Whether a memorandum of lease can be recorded is often negotiated in a lease agreement. Preserve your rights first and foremost in the body of the lease agreement. • The importance and legal requirement of recording a memo- randum of lease will vary based on state law requirements, the length of the lease term and whether the lease grants any additional rights to a tenant. • Best practice for a tenant is to record, and amend as necessary, a memorandum of lease for every lease agreement and subsequent amendment. • Best practice for a landlord is to prohibit the recording of a memo- randum of lease or ensure a ter- mination of memorandum of lease is recorded at the time the lease terminates to avoid a later cloud on title. s szurfluh@hallrender.com lpark@hallrender.com rlarkin@hallrender.com Understand importance of a memorandum of lease Sadie Zurfluh Attorney, Hall, Render, Killian, Heath & Lyman PC Libby Park Attorney, Hall, Render, Killian, Heath & Lyman PC Rene Larkin Attorney, Hall, Render, Killian, Heath & Lyman PC