Enforcing and Fighting an Automatic Renewal Provision in a Lease

Enforcing and Fighting an Automatic Renewal Provision in a Lease

Enforcing and Fighting an Automatic Renewal Provision in a Lease

Few issues catch both landlords and tenants off-guard more than an automatic renewal provision in a lease. Ostensibly to ensure and protect an ongoing landlord-tenant relationship, most of the time these provisions just end up surprising one or more parties and forcing them into another term that neither was interested in. More cunningly, these provisions are sometimes snuck in by landlords hoping that their tenants will just “forget” that they needed to give notice of an intent not to renew a lease. Many tenants, both commercial and residential, can suddenly find themselves on the hook for another whole year, or more, and unable to move to a more desirable location.

Not all is lost, however. In many cases, automatic renewal provisions neglect to put a limit on how many times that the renewal provision applies without action by a party. If that’s the case, the lease term is deemed to have gone beyond at least three years and, without being signed and notarized by the landlord, is unenforceable.

The general rule in Ohio is that any lease in real property is subject to the statute of conveyances. R.C. 5301.01.  Essentially, for any lease in real property, the landlord must both sign the lease AND have the lease notarized. If they don’t, then the term of the lease is void.

The only exception to this general rule is any lease that does not exceed three years. R.C. 5301.08. As most leases, especially residential leases, go for a period of twelve months, this doesn’t usually apply unless there is an automatic renewal clause.

Why does this matter for an automatic renewal clause? Two reasons:

  • Most automatic renewal clauses have no limit on renewals, and so by necessity make the term of the lease go beyond three years. As stated explicitly by Ohio’s 12th District Court of Appeals, “[i]n order to be valid, a perpetual lease must be created in accordance with Ohio’s statute of conveyances, R.C. Chapter 5301. A lease is perpetual if it contains an automatic renewal clause which makes the duration indefinite and uncertain.” Haught v. Geissinger, 2009-Ohio-98, ¶ 12.

and

  • Almost no one bothers to get the lease notarized. A common and successful defense against landlords attempting to enforce an automatic renewal clause in a lease is to point out that there was no limit to how many times a lease could automatically renew, and that the lease was never notarized. Because the lease wasn’t notarized, and the lease through the automatic renewal clause went beyond three years, the term of the lease is unenforceable by law.

PRACTICAL TAKEAWAYS

Both landlords and tenants can help themselves by being aware of Ohio’s notarization requirements for leases that last longer than three years, including automatically renewing leases with no end date.

TAKEAWAYS FOR LANDLORDS

Landlords can protect their interests in one of two ways:

  • Adjust your automatic renewal provision so that it is limited to three years; or
  • Notarize your contracts.

Though somewhat counterintuitive, the easier action to take is just to have someone on staff, or have yourself, notarize every contract that you make with a Tenant. Becoming a notary is not a complicated process, and many public notaries are available at a low cost. As only the landlord’s signature, not the tenant’s, must be notarized you can even set aside a day and just have all your leases signed and notarized at the same time.

If you’re worried about your process falling through and not being able to notarize every lease, your lease agreements can be changed fairly quickly and at low cost by a competent real estate attorney. Just make sure that your lease terms are limited to three years or less in terms of your automatic renewals, and you won’t have to worry about complying with the statute of conveyances.

TAKEAWAYS FOR TENANTS

Tenants, if you’re looking to get out of a lease and there is an automatic renewal provision, ask to see a copy of the lease agreement. If there is this provision, and it doesn’t limit itself to three years or less, THE TERM IS VOID, and most courts will interpret the new agreement to be a month-to-month tenancy. A word of caution, some landlords may attempt to bring a claim against you anyway, even though the lease is unenforceable. Make sure you consult with an attorney with landlord-tenant experience that can raise the statute of conveyances defense and make the landlord leave you alone.

FINAL THOUGHTS

Ohio’s statute of conveyances is a powerful tool for both landlords and tenants. Landlords should make sure that they are in with it if they wish to enforce any lease going longer than three years, including leases with automatic renewal provisions. Tenants should read their lease carefully if they are looking to leave a property without penalty, and be ready to use a landlord’s failure to notarize the lease as a defense to paying rent under the lease.

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About Alex Gertsburg

At Gertsburg Law, our attorneys have a comprehensive understanding of the countless issues facing businesses on a daily basis. Most of our experienced attorneys in the Chagrin Falls and Cleveland offices are former business owners and in-house counsel, bringing a unique perspective and depth of knowledge to their skill set. We will work with you to understand your goals and to find the right solution for your organization.