SBM Real Property Law Section eNewsletter

April 2011

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Howard A. Lax, Lipson, Neilson, Cole, Seltzer & Garin, PC

Patricia Paruch, Kemp Klein Law Firm


Statute of Frauds—Leasing Rules of Thumb

By Lawrence R. Shoffner, Esq

Who must sign a multi-year lease for it to be enforceable? The answer is found in Rutila Properties, LLC v. Thumb Cellular, LLC, (Mich. App. No. 294907, unpublished 2011). The Thumb court examined three statutes of frauds: (1) MCL 566.132, which establishes the general rule that any agreement that cannot be performed within one year must be signed by the "party to be charged"; (2) MCL 566.106, which states that no interest in lands, other than a lease for a term not exceeding one year, may be created, granted, assigned, surrendered, or declared, unless in writing, signed by the party creating, granting, assigning, surrendering, or declaring the same; and (3) MCL 566.108, which states that every contract for leasing, for a longer period than one year, is void, unless the contract, or some note or memorandum thereof, be in writing and signed by the party by whom made.

According to Thumb, the statutory interplay affects the parties differently. If a landlord seeks to enforce a long-term lease, it must: (a) proffer a lease executed by both landlord and tenant, and (b) prove that the lease had been previously delivered to tenant. However, if a tenant seeks to enforce such a lease, it need only proffer a copy signed by the landlord. Because the lease proffered in Thumb had not been executed by landlord, the court entered summary disposition in favor of tenant. Although the landlord subsequently (but too late) located a fully executed copy, the court denied landlord's motion for reconsideration on procedural grounds.

Leasing Rules of Thumb: (1) make sure both parties execute the lease; (2) establish evidence of delivery (for example, a cover letter with certified mail receipt); and (3) file everything where it can be found.

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April 14, 2011
7:30-9:30 a.m.
Groundbreaker Breakfast Roundtable
Detroit Athletic Club (DAC)
Show Me the Money: Non-Traditional Financing Alternatives

May 5, 2011
2:00-5:00 p.m.
Homeward Bound
The Inn at St. John, Plymouth
Leasing Fundamentals

July 20-23, 2011
2011 Summer Conference
Finding the Silver Lining: Real Estate Opportunities Arising from the Economic Crisis
Grand Traverse Resort & Spa

Missing: Buyer Instructions

By Howard A. Lax, Lipson, Neilson, Cole, Seltzer & Garin, PC

In Coran v. Century Title Agency, LLC, (Mich. App. No. 293540, unpublished, November 18, 2010), plaintiffs each paid a developer to purchase a lot. The transactions closed through defendant title agency. Deeds for the lots were never recorded. There was no escrow agreement, and the purchase agreement imposed no duty on the title agency. Plaintiffs sued the title agency five years after the closing on a number of theories, including breach of duty by the closing agent to disclose developer fraud. The Court of Appeals, citing Wormsbacher v. Seaver Title Co., (284 Mich App 1; 772 NW2d 827 2009), held that title agencies have no duty outside of their contract. This decision demonstrates why buyer closing instructions are essential in every transaction even though they are rarely drafted. The Coran court suggests that an escrow agreement would protect the buyers. However, most title agency escrow agreements protect the title agency, not the parties to the transaction. The court also suggested including closing instructions in each purchase agreement. However, commonly used purchase agreement forms only require the seller to obtain title insurance for the buyer's review, and provide no closing instructions. The Real Estate Settlement Procedures Act prohibits a title agent from collecting a fee for services without providing the services, but this Act does not apply to non-residential transactions, among others. Lenders prepare closing instructions to protect their interests, which coincidentally may protect the buyers. However, the mortgage industry never implemented uniform lender closing instructions to protect against fraud (view here ). Furthermore, there are no lender instructions for a cash transaction.

Practice Point: Every transaction should include buyer and seller closing instructions, including a duty to disclose indicia of fraud.