If your business operates a brick-and-mortar store – a commercial storefront, a share-space, even a kiosk – your space is your livelihood. If your business is real estate leasing, your tenants are your bread and butter. In a congenial business relationship, all parties involved benefit from an airtight lease agreement; in a contentious tenancy, the benefit is knowing where the lease falls short.
Notarization is often overlooked in the long lease checklist, partially because the need for notarization is uncertain. When should I get a notary? Does the law differ on commercial versus residential leases? What if we later modify the lease?
Thankfully, we can answer these questions in short order. Let’s start with the fundamentals:
Basic Notarization Requirements
Under Ohio’s Statute of Frauds (O.R.C. § 1335.04), all transactions involving interests in real estate must be in writing and signed. Signed by whom? Well, the parties to the lease, of course. But for notary signature requirements, we must turn to Ohio’s Conveyance Statute.
The Conveyance Statute (O.R.C. § 5301) has two defining characteristics. First, it applies equally to residential and commercial leases. Second, its requirements for notarization are mainly a function of time. Read together, sections 5301.01 and 5301.08 states that a lease whose term is three years or less does not require notarization. By its inverse, leases greater than three years do require notarization – an interpretation which the courts have confirmed.
Extensions and Modifications
Things get more complicated when we talk about lease renewals and extensions, but only slightly. When calculating the “length” of a real estate lease that contemplates an extension, we add the extension’s longest potential length to the original term. For example, a three-year original term with a one-year renewal brings our lease to four years in length and places it within the Conveyance Statute. An initial one-year term with recurring one-year renewal terms has the same effect. As a rule of thumb, if a lease could last more than three years, it needs to be notarized. This applies to automatic renewals and options alike.
Modifications of a lease may also require notarization, depending on the type of modification made. Under Ohio law, where a modification to a lease alters the “fundamental possessory interests” of the parties, it is a conveyance of interest and must be notarized. A “fundamental possessory interest” can be either a change in the dimensions of space to which the tenant has access (i.e., adding or subtracting lease space) or – of course – a change in lease duration.
Effects of Improper Execution
A lease that falls within the Conveyance Statute and is not notarized is known as a defectively executed lease. Once a tenant takes possession under a defective lease and pays rent, only a periodic tenancy is implied by law, regardless of the duration stated in the lease. The implied “period” of the tenancy is based on the lease’s payment schedule. If rent comes due monthly, the law will imply a month-to-month periodic tenancy. In all other respects, the terms of the defective lease will be upheld.
It’s always best to do the math and determine for yourself if a lease could last more than three years. Sometimes provisions can complicate an otherwise simple math problem, so if you’re uncertain, you should consult an attorney or play it safe and secure notarization.
Nate Haskell is an attorney at The Gertsburg Law Firm and has more than a decade of experience advising clients in business transactions and disputes. Nate can be reached at [email protected] or by phone at 440-571-7540.