As Set Forth On Exhibit A (Not Actually) Attached Hereto

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As we were reading a very recent decision issued by the Supreme Court of Alabama, we once again were preparing to write how wasteful it was for the parties to litigate the issues raised. This urge happens often enough that Ruminations has considered preparing “boilerplate” language to be inserted at the end of many blog postings. Then we got to the concurring opinion. It could apply to many of the “manufactured” disputes created by one party or the other and supported by their advocates. Though the following words by that concurring justice give away part of the story we are going to tell, its content and tone resonate with Ruminations. We suggest that we all step back each time issues like these arise and reconsider our thoughts about litigating them.

I write specially to express my opinion that this lawsuit should never have been filed. … For reasons that can be attributed only to greed, [the landlord] argues that the memorandum of lease failed because of the omission of Exhibit A and was void—thus limiting the term of the ground lease to 20 years rather than the agreed-upon 50 years. In other words, [the landlord] argues that the failure to attach Exhibit A, the content of which was not in dispute, to the memorandum of lease was so egregious that a multimillion-dollar transaction was called into question by a ministerial act or curable error. … The only concern in our over-litigious society is the validity of the memorandum of lease when there is a clerical mistake. Although the trial court’s decision was absolutely correct, it is a shame that rational actors, including lawyers, did not resolve this minor problem by showing leadership, if not legal prowess, and simply re-recording the memorandum of lease with Exhibit A attached.

Alabama law requires that for leases with terms of more than 20 years either the lease be recorded or a memorandum of lease be filed. The recording must be done within a year after the lease is executed and, in the case of a memorandum of lease, it must contain, among other things, “[t]he specific legal description of the leased premises.” If the lease’s term is over 20 years, but the recording is not made, its term is automatically limited (shortened) to 20 years.

Here, the lease in question was a 50 year ground lease with an option for the tenant or its successors to purchase the leased property after 25 years. As readers have already learned, a memorandum was timely recorded, but even though it recited that the leased property was described on an Exhibit A, that Exhibit was missing. This was discovered when, five years after the lease had been executed, the original tenant rightfully transferred its leasehold interest to a third-party, successor tenant. The lease included a property description of the leased property; the landlord delivered an estoppel letter to the successor acknowledging the lease as a 50- year lease in full force and effect; the subject property was the only one in the county owned by the landlord. So, there was no factual dispute as to the leased property’s description.

The trial court and Alabama’s Supreme Court each agreed that the property-describing Exhibit’s omission was the result of a mutual mistake. Yes, the landlord saw this as an opportunity to cut 30 years (and a purchase option) from the ground lease. It argued, among other things, that it wasn’t a mistake. After all, the tenant had prepared the memorandum and (we) the landlord just signed what was in front of us. So, if there was a mistake, it wasn’t mutual – it was unilateral on the part of the tenant. [That argument probably “ticked off” the concurring justice.]

What the trial court did and what the Supreme Court endorsed was to “reform” the recorded memorandum of lease by adding what was mistakenly omitted. That outcome will surely disappoint those who hold that “the law is the law is the law.” That is, unless they understand that the law includes such corrective remedies as “reformation.” In such case, they will be happy to know that Alabama Courts do, in fact, hold up the law notwithstanding some notable, highly-charged examples otherwise noted by the press in recent years.

We did not choose this court’s decision for any of the reasons included above. We chose it before we saw the very sensible concurring opinion. So, why did we choose it? It’s because the situation presented is one we’ve seen (too) many times before. We at Ruminations don’t have enough fingers and toes to count how many times a document was missing a critical Exhibit. Yes, plain left off. Very often these are annotated diagrams. “Where can vehicles be parked overnight”? Sometimes they are lists. What exclusive uses must be honored? What was the original tenant work? You nameit, we have seen it.

And why is that? Carelessness. Plain and simple. Is there a solution? Yes, be careful. Put a big sign on the wall. Let it say: “Are all of the Exhibits and Schedules attached?”

While we are at it, here’s an extension to that thought. Let’s stop referring to non-public external documents within our own documents. By way of example, let’s stop including provisions in our deeds that say: “Subject to the restrictions in a June 11, 1931 lease between A and B.” If it’s a restriction, spell it out. Very few people and companies still have a copy of 1931 leases.

[If you want to see the actual opinion, click: HERE.]

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Comments

  1. Jeremy J. Deeken says:

    I wonder if it was a common business practice for the landlord to “just sign whatever …(is) in front of us”. If so, I would be an eagerly willing tenant rep.

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