One of my earlier Keeping it Real posts pointed out that commercial leases in Ohio must be signed by the lessor, and the lessor’s signature must be acknowledged before a notary or other official. Revised Code 5301.01
Is it safe to ignore a lease that should have been acknowledged but wasn’t? Not always. Courts have ruled that the purpose of the acknowledgment statute is not to provide a way to escape for a party who later wishes to renege. Sometimes a court will treat the defective lease as a contract to make a lease.
The extension agreement also granted the resource center two further options to renew for terms of five years each. Seven years after signing the extension agreement, both parties faced financial problems and tried to renegotiate their agreement.
When negotiations failed, the resource center notified the landlord that it would abide the original agreement. The landlord notified the resource center that it was terminating the tenancy and closing the building due to financial problems and gave the resource center 10 weeks to be out of the building.
Before the 10 weeks expired, the resource center sued the landlord for violating the lease. The resource center did not seek a monetary award but asked for an injunction ordering the landlord to abide by the lease.
The landlord argued that the original lease had expired and that the extension agreement was defectively executed because it had not been notarized. As a defectively executed lease, the extension agreement created only a month-to-month tenancy, which the landlord had properly terminated.
The trial court granted summary judgment for the landlord because the landlord’s signature of the extension agreement was not notarized, and the resource center had not shown partial performance of the extension agreement.
On appeal, the resource center pointed to the hardship it would suffer from losing the lease and argued that it would be left with no adequate remedy if the extension agreement was not enforced.
The Summit County Court of Appeals ruled that the trial court erred by requiring the resource center to prove partial performance. A defectively executed lease can sometimes be enforced against the landlord as a contract to enter into a lease. A tenant may not be able to seek damages for breach of that contract without proving been partial performance, but the resource center was not seeking damages, it was seeking an order requiring the landlord to perform.
The remedy of specific performance does not require the tenant to show partial performance. But specific performance rests in the sound discretion of the court and is not a matter of right. The appellate court ordered the trial court to consider whether to grant the resource center’s request.
KEEPING IT REAL... To be safe, both parties should insist that the lessor’s signature is acknowledged. But if the lease is not notarized, both parties need to plan for the worst. Some courts may decline to order the landlord to perform the lease. But the landlord should not assume that it can ignore a lease that has not been notarized, even if the term is for more than three years. And other factors, including part performance, can also lead to an award of damages to the party that wants to enforce the lease.
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