What is a Memorandum of Lease Agreement?
A memorandum of lease agreement is a brief legal document that succinctly contains the basic terms of a lease agreement, including the commencement and expiry date of the lease, the rent, etc. It does not contain the full terms of a lease but merely a summary thereof. It is usually drafted when the parties have agreed to most of the provisions of a lease but negotiations on a few issues are still ongoing.
A memorandum of lease agreement has the effect that the agreement of the parties is still binding on them, even though negotiations on the lease are not yet complete . A memorandum of lease is generally not sufficient to deal with all the terms of a lease because many of the key terms are not included therein, and, in addition, it does not include a description of any improvements upon the property which are the subject of the lease.
It is often used when the parties want to avoid disadvantageous provisions being inserted into the lease (for example an automatic renewal clause or an escalation clause) while still being able to reserve the right to negotiate the terms of the lease.
Elements of a Memorandum of Lease
The specific components of a memorandum of lease are determined by the type of property being leased but there are several standard items that should always be included in a memorandum of lease agreement:
Parties Involved. The parties involved in a lease or rental agreement are identified in the memorandum of lease and must include the parties who will be leasing the real estate as well as the party that owns the property. Commonly, parties are identified as "Lessee" and "Lessor." It is important to note the exact names of the parties involved—full names should be used in order to prevent future issues if the parties’ names have changes over time, such as a name change due to marriage.
Lease Term. The most important aspect of a memorandum of lease (or any lease agreement) is the term of the property lease. A memorandum of lease agreement should specify when the lease period begins and when it ends. This portion of the agreement should be specific—lease terms should not be done orally when it comes to real estate and it should be noted precisely on the document.
Property Description. The memorandum of lease should provide all details regarding the property that is being leased or rented. A memorandum of lease should include: 1) the name of the county and state where the property is located; 2) a detailed description of the location of the property; 3) the current use of the property; 4) any governmental limitations, covenants or conditions on the land; 5) the type of property being leased; and, if applicable, 6) if the property being leased is a sublet.
Any other details of the property should be included, such as if the property has improvements on it like buildings. The property description of a memorandum of lease should be as detailed as possible.
Why Use a Memorandum of Lease Rather Than a Full Lease Agreement
In most cases, there is no legal reason why a full lease agreement should not be the document of choice when putting a lease in place. However, there may be strategic or business reasons to consider using a memorandum of lease instead of a full lease. Among them are the following:
Privacy Considerations. There may be privacy interests involved in the particular transaction that make the use of a shorter, less detailed document more appropriate. A shorter document means fewer personal details are being disclosed to the public at large. For example, in many cases, a short-form lease will not include a lessee’s social security number, birth dates and names of minors. A short form will also do away with other less significant identifying information that could be publicly disseminated if the entire lease is filed in a public place.
Recording Considerations. If a recording is mandated in a particular situation, the fact that a certain document has been recorded in a public place is a matter of public record that is generally open to inspection. If the short form lease is on file and the entire lease is not, the lessor or any other members of the public seeking to ascertain the terms of the lease will have a relatively difficult time doing so. In many instances, it simply won’t happen.
How to Prepare a Memorandum of Lease Agreement
Before the full lease agreement has been executed, either party may wish to file a notice that an agreement is in existence, called a Memorandum of Lease Agreement, on the property records. While an executed agreement carefully detailed under state laws will give you the best possible chance of completion, situations may arise that mean you must records other paperwork in its place. Can you file a Memorandum of Lease Agreement instead? How do you draft one? Are there templates available online for free? These are the questions we will answer for you here.
What Should I Include? During the process of negotiating the terms of the lease, a lot of information is likely to become available but not finalized. You will have a general idea of who the parties are, the premises, the term of the lease, and the rent amount, including periodic adjustments. As time progresses, however, these details may change. The best course of action is to record as much as you can that is accurate. As more information becomes available and the parties agree to changes to the initial agreement, you can build on the original Memorandum.
So, to start with, your template should include the following: Your State Laws Different states have different requirements and procedures for filing a Memorandum of Lease Agreement. In California, simply filing one provides constructive notice, and you can avoid costly litigation down the road as long as you carefully follow procedural requirements. In other states, you might be required to file the original agreement with the Memorandum, post the rent amount, or provide more detailed information on the title or legal description of the premises.
Find out what your particular state requires so that you are in full compliance.
Templates Online There are several places you can find templates for free.
Although these templates can be useful, you may wish to hire an attorney who specializes in real estate law to draft them for you. Your attorney can prepare your lease agreement and the Memorandum of Lease Agreement, or you can do one and let them do the other. This ensures that all the paperwork will be complete, and the terms of the full lease agreement accurately reflect on the Memorandum.
How to File Your Memorandum of Lease Agreement The process for filing a Memorandum of Lease Agreement is different from state to state. However, in most cases, you will need to take the original document to the county clerk’s office, or record it with the city if you live in an urban area. To file, the Memorandum must first be notarized, which your real estate attorney can handle for you.
The county clerk’s office will provide you with a copy of the Memorandum stamped "Filed," and a separate copy with the original signature and copies of the attachments. You can use the first stamp copy to notify others of the agreement.
The cost to file will vary by region. If there are too many pages, you may be charged a per page fee, and you might have to pay each time you need to file an amendment or file for renewal at the end of the term.
Recording a Memorandum of Lease
The recording of a memorandum of lease takes place following the execution and delivery of a lease agreement. The document is recorded in the public land records so as to provide constructive notice of the existence of the lease to the general public, such that any title companies or third parties searching title will be on notice of the rights granted under the lease. In this way, the registrant of the document can ensure that no third party will later claim that he or she was not on notice of the lease if the lessee attempts to exercise rights under the lease . A memorandum of lease provides only a summary of key provisions within a lease agreement; however, it must at the very least set forth the date of the lease, the names of the parties thereto, the term of the lease, a description of the property and any rental amounts. Depending upon the jurisdiction, title may be taken in the name of either the lessee or lessor, and thus a full lease agreement may need to be recorded rather than a mere memorandum of lease. A full lease agreement must be acknowledged by the parties in accordance with state law in order to be properly recorded, which may require an independent witness to the execution of the document.
Common Legal Problems and How to Avoid Them
Failure to register: One common pitfall is the failure to register the Memorandum of Lease ("MOL") or Long-Term Lease Agreement. An unregistered MOL or Long-Term Lease Agreement may create uncertainty around the priority of the interests held by the parties. According to s 53(6) of the Deeds Registries Act No 47 of 1937, a Lease Agreement for a period exceeding ten (10) years must be registered within nine (9) months of the date it was initially entered into. This provision is mirrored in the Companies Act 61 of 1978 which specifies that the lease may not be entered into for a period exceeding three (3) years without the prior resolution of the shareholders. It is therefore clear that a MOL or Long-Term Lease Agreement must be registered and made subject to a section 52 mortgage bond in order for the parties to the MOL or Long-Term Lease Agreement to protect their interests. Failure to comply with these provisions may give rise to a dispute around the validity of the MOL and possibly even resultant litigation. If one does not wish to register the MOL or Long-Term Lease Agreement, one must still comply with the resolution requirements as set out in the Act.
Incorrect registration: An MOL serves as a road map or guide to potential future lease agreements between the parties to the MOL. It captures the information regarding the possible Lessees and lessors for future lease agreements. Section 52 of the Deeds Registries Act 1937 makes provision for the registration of an MOL. The registration deed must be certain and must be executed correctly as laid down in the prescribed deeds regulations. There are several courts and cases which deal with administrative errors made by the conveyancer during the registration process. One must be cautious during the registration process as small typographical errors may result in confusion and ultimately disputes between the parties.
Misunderstanding of the effect of MOL: It is important that landlords who enter into MOL’s with their lessees ensure that they have the correct understanding of the effect of the MOL. The signing and registration of the MOL will not entitle the possible future lessees to occupy the premises in respect of which the MOL has been registered nor will it entitle them to exclusive use of the said premises. The execution and registration of the MOL merely serves to protect the rights of the parties to the MOL by calling upon the authors of the Act to provide them with legal security to enforce their existing rights as outlined in the MOL. It gives the parties vested rights, even though the right is only dependent upon the conclusion of a future lease agreement. A carefully drafted MOL will protect the parties’ future interests.
Memoranda of Lease FAQs
What do I need to do to get a Memorandum of Lease filed?
In order to file a Memorandum of Lease, a Request for Issuance of Memorandum of Lease must be prepared as well as a Certificate to File the Memorandum of Lease (which requires notarized signatures) and a list of the land descriptions involved in the leasehold if there is more than one parcel of land involved. The filing fee for each Memorandum of Lease is $129.00 .
How does a Memorandum of Lease impact my leasehold title?
While a Memorandum of Lease creates an instant right to a leasehold interest upon signing, it does not necessarily create marketability of the leasehold interest as it must be entered into the Registry of Deeds.
Am I required to include the Memorandum of Lease in the chain of title of my leasehold?
Yes. However, you may choose to not include it in the chain of title because there may be no need to give notice dates to the public. Further, the index for Memorandums of Lease may becircae inconsistent because the Memorandum of Lease can potentially be presented to the Registry of Deeds out of order.