Commercial Lease Agreement Enforceability
Is your business a party to a commercial lease agreement where it seems like that relationship no longer serves the parties’ business interests? Are you wondering what can be done, if anything, to end that relationship sooner rather than later? This situation can arise for any number of reasons. For example, when a commercial property with current tenants is acquired. Whether and the extent to which a lease may be terminated, and whether and the extent to which any termination gives rise to litigation between the landlord and tenant, depends on the facts and circumstances of each particular case. 
In some circumstances, for example, the parties may simply terminate the lease by giving proper notice consistent with the notice provisions contained in a written lease agreement. If there is no written lease agreement, then the lease may be terminated by giving adequate advance notice. See R.C. 5321.17 (requiring seven- or 30-days’ notice for week-to-week or month-to-month tenancies, respectively). If there is a written lease agreement that purports to bind the parties to successive terms of multiple years, or if the putative lease agreement only permits termination under a defined set of circumstances, then the parties may have to explore other options.
For example, defects may be present in a written lease agreement’s original execution or in any subsequent assignment thereof. Such defects may support an argument against enforceability. In Ohio, lease agreements must be signed by the lessor before a notary. See R.C. 5301.01(A). Further, “[t]he holder of any . . . lease . . . may execute to a transferee an assignment for the whole or any part of the . . . lease . . . by the endorsement of the assignment on the original instrument of encumbrance, the holder’s duplicate . . . or by a separate instrument” that must also be notarized. See R.C. 5309.51. In other words, if a lease agreement wasn’t notarized when it was first signed, or if someone later attempted to assign it without a notarized assignment agreement, it may be argued that the terms of the original written lease agreement aren’t binding upon the current owner/occupant.
Moreover, a properly executed lease agreement, any assignments thereof, or a memorandum of lease (i.e., a short form documenting the material terms of a longer lease agreement) should be recorded in the public records in order to notify others of encumbrances on the property. See R.C. 317.08(A)(25), 5301.251; Board of Com’rs of Hamilton County v. Arena Mgmt. Holdings, LLC, 1st Dist. Hamilton Nos. C-030312, C-30339, 2004 WL 102137, 2004-Ohio-247, ¶ 26 (Jan. 23, 2004); see also R.C. 5301.25(A) (“All . . . instruments of writing properly executed for the conveyance or encumbrance of lands . . . shall be recorded in the office of the county recorder . . . . Until so recorded . . . they are fraudulent insofar as they relate to a subsequent bona fide purchaser having, at the time of purchase, no knowledge of the existence of that former . . . instrument.”). Thus, if there are no documents recording a leasehold interest on a parcel of real property in the public records, then a subsequent purchaser of that property may argue that it did not take title subject to the putative lease.
Notably, although similar in many respects, a number of different rules apply to commercial versus residential lease agreements. A number of factors can influence the enforceability of a commercial lease agreement, including its execution, subsequent assignments, and any prior attempts to record the leasehold interest. Again, each case is different, and no particular outcome can ever be predicted or guaranteed with certainty. A more detailed discussion of the rights and remedies of commercial landlords and tenants is beyond the scope of this article.
If you have questions or concerns about a commercial lease agreement, then you should contact an attorney licensed to practice in your jurisdiction. The different facts and circumstances in your case will determine your options. You should contact an attorney licensed to practice in your jurisdiction for additional information about this area of the law.
Max Julian is a partner at Gertsburg Licata in the litigation practice group. He may be reached at (216) 573-6000 or at [email protected].
Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A, and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.
