Memorandum of Lease 101

Memorandum of Lease 101

Posted by Marc DeLille on July 22nd, 2021

Investing in a new office space for your business is an exciting milestone — especially when you upfit the space to meet your growing company’s needs. But what happens if a few years into your five-year lease, your commercial landlord decides to sell the office building? Will the buyer uphold your existing lease or will you be forced to move out of your office space? Do your lease terms protect your business against these scenarios outside of your control?

Without a Memorandum of Lease, you may find yourself scrambling to secure a new office space for your business. Let’s take a look at what a Memorandum of Lease is and how you can protect your business from being forced out of your space in the event of a sale of the building.

What Is a Memorandum of Lease?

As a business owner, you need to take the necessary precautions to protect your business — and that includes protecting your office space. At the time of signing your lease, it is recommended that you work with your attorney to secure a Memorandum of Lease (MoL), also known as a short form lease. The MOL is a short document that outlines portions of the lease, leaving out both confidential or proprietary information about the financial aspects of the lease. This includes the description of the premises, the lease terms, exclusive use clauses, and states the parties involved. This document is filed with the deeds office in the county where the property is located and recorded in the system for a minimal cost.

If the lease is not recorded with the deeds office, the lease is only enforceable against the existing landlord specified on the lease. This means that your current landlord can’t terminate your lease other than specified in the lease terms. However, if the building changes ownership, the new owners do not have to uphold the existing lease agreement which can result in an eviction. This is why a Memorandum of Lease is an important protection for your business. If a Memorandum of Lease is on record, your business will be protected and be able to see out the existing lease until it wraps up. Recording your lease through the proper channels ensures you will not be evicted and forced to find a new office space for your company.

MoL Recommendations for Leaseholders in North Carolina

For businesses in North Carolina, G.S. § 47-18 states that any tenant leasing a commercial property for more than three consecutive years should have a Memorandum of Lease on file and recorded with the Register of Deeds. This applies to all leases totaling three or more years. This means that even leases with terms stating a one-year initial term followed by renewal options need to be considered. If you lease commercial property for one year with the option for two additional years after the first year, you need to record an MoL with the Register of Deeds to protect your business from a third-party purchaser coming in and forcing you out. While the initial lease term wasn’t for three years, the total lease term is and thus qualifies under G.S. § 47-18.

How to Get Started with the Memorandum of Lease Process

No lease is exactly the same and different laws apply to varying lease terms, which is why it can be a confusing process to manage on your own. It is critical that you understand the nuances of your lease and take the necessary steps to ensure your business is protected should a third party get involved in your commercial lease. For peace of mind, reach out to a brokerage team that can guide you through the process and ensure your assets are protected.

Looking for a long-term lease? Ready to protect your investment? Price Commercial Properties is here and ready to help. From the first contact with our staff, your business real estate needs become our to-do list.

Our brokerage team can help you find the perfect space for your business at the best terms while advising you on the best tactics for negotiating new leases, lease renewals, relocations, and extensions.

If you have questions about navigating the Memorandum of Lease process, Price Commercial Properties can help. Contact us today!