No matter the length of the term, a lease does not need to be recorded in the registry of deeds to be enforceable against the landlord and tenant. The tricky part comes when other parties have claims against the same real estate.
For example, if a 10-year lease is executed on March 1 and never recorded, and a mortgage is recorded two weeks later on March 15, what happens when the mortgage is foreclosed? Absent “equitable” factors, the answer likely is that the foreclosed mortgage wipes out the lease, and the purchaser at a foreclosure auction takes title without the burden of the lease.
This rule is a bit less clear if the lease is for a term of seven years or less. New Hampshire RSA 477:7 requires all leases “for more than 7 years from the making thereof” to be recorded in the registry of deeds to be enforceable against parties other than the landlord and tenant.
In calculating the seven years, conventional practice in New Hampshire is to include renewal terms; therefore, a five-year lease with one five-year option should be recorded. If it isn’t, can a future lender/mortgagor shake-off the entire lease in foreclosure, no part of the lease, or just the renewal term? To avoid being test case, we suggest recording the lease.
In lieu of recording the entire lease, the parties may record a short-form “notice of lease.” Recording these short-form notices is the common practice in New Hampshire. RSA 477:7-a sets for the specific items that must be included in a notice of lease, such as the names of the parties, a description of the leased real estate, and the term of the term of the lease, including all rights of extension or renewal.
Lenders protect themselves by requiring owner/borrowers to have their tenants sign subordination agreements, whereby the tenant agrees to subordinate their lease rights to the lender. These agreements often are given along with non-disturbance and attornment language, whereby the lenders agree not to disturb the tenancy, provided the tenant is not in breach of the lease.
This approach makes a lot of sense to lenders of investment properties where the payment stream from the lease provides plenty of important value to the lender. If the lender forecloses, the lender likely will not want those leases to go away.
Market conditions play a role too. In a rising market, the lender may want to extinguish existing leases. In a falling market, a lender may want to enforce the current leases for as long as possible.
In sum, to ensure a lease is binding on any party to whom the owner may grant an interest after the date of the lease, whether voluntarily (a mortgage) or involuntarily (an attachment lien), the lease, or a short-form notice of lease, should be recorded.