Marketability of title to real property is not impaired by an unexpired leasehold interest if there is recorded in the land records a document, such as a lease termination agreement or other evidence of termination by which the title examiner can reasonably conclude that the leasehold interest of the tenant has been extinguished and that the tenant is no longer in possession of the property.
Comment 1: In evaluating whether title is marketable where a presumably terminated lease appears, it is not enough that the examiner is able to determine that the tenant is no longer in possession, since it is quite possible that a tenant may have vacated the premises but continues to pay rent and keep the lease in effect. For that reason, this Standard imposes a second requirement on an examiner’s ability to certify title over an apparently terminated lease, viz. that the examiner procure information in recordable form by which the fact of the termination becomes a public record.
Comment 2: It is possible that one or more tenants are occupying a property by virtue of leases that are not recorded in the land records or evidenced by a recorded memorandum of lease, notwithstanding the limitation of 27 VSA §341 that leases for a period of more than one year are not effective against third parties unless the lease is recorded at length in the land records or a memorandum of lease has been recorded. In the absence of a recorded instrument, the examiner may not be charged with constructive notice of the tenancy, but the examiner may well have actual notice of the tenant’s interest. Any such interest should be disclosed as part of the report on the status of the title.
Comment 3: Even if a new tenant is in possession and even if there is a recorded notice of lease for that new tenant, unless otherwise expired, the termination of the original lease must be established pursuant to this Standard.
Comment 4: Tenant’s rights in a bankruptcy proceeding should be reviewed in light of the current bankruptcy code.
Comment 5: An encumbrance on the tenant’s leasehold expires if the lease expires; is terminated; or a judgement terminating the lease, resulting in the tenant no
longer having an interest in the leasehold. Leases may be terminated upon mutual agreement of the parties, or upon the tenant’s abandonment of the premises. The title examiner’s problem is that neither of these events is likely to be evidenced in the land records. In the absence of such evidence, the title examiner must continue to carry the leasehold encumbrance as an exception to title. An abandonment may be demonstrated on the record by an affidavit specifying the facts showing abandonment.
Comment 6: In the circumstance where there is an agreement between the tenant, tenant’s lender and landlord, the abandonment of the leased property by the tenant should not be relied upon as evidence of the termination of the tenant’s lender’s rights in the absence of an agreement by the tenant’s lender.
History
September 2022: Standard and comments were added.
September 2024: Comments 5 and 6 were added.