A lease agreement is to be recorded or registered before the Register of Deeds. According to the recording statute, the recorder's office should be in the county where the property in question is located. According to notice statutes, the process of recording is initiated when a document that is duly executed and acknowledged is submitted before a recorder for filing in public records. Click here to view our state specific notice of recording forms. While recording a capital lease, a lessee should record the asset, its depreciation and its long term liability. A capital lease is a lease in which there is a provision to capitalize an asset as well as record a party's rights, such as the lessee has an option to purchase the property at the end of the lease term.
The benefit of lease recording is that it gives you priority over subsequent tenants or a bonafide purchaser or holders of liens. Thus, if you do not record a lease, and your landlord fraudulently leases the property to another person for valuable consideration who registers the lease deed promptly, the new lessee will have preferential interest over the property. The new lessee can even ask you to vacate the premises.
Once a lease is recorded, the recording is believed to constitute constructive notice of the terms of the lease to subsequent buyers or mortgagors. In other words, recording statutes serve three purposes: (i) they give the public information about ownership changes to a property; (ii) they protect future purchasers or lien holders from the same grantor by giving them constructive notice; and (iii) when there are conflicts relating to claims over a property, they help establish preferential claims.
If you haven't recorded your lease and are facing unfortunate consequences like the lease becoming invalid for that reason, you need not be totally disheartened. You have one way to protect your rights-you can raise a claim for breach of contract against the landlord. Depending upon the terms of lease, you can raise various claims like loss in business due to change of location, etc. It is, however, advisable to enter a notice of recording a lease in order to enjoy all your rights over the leased property, without risking losing your rights to someone else. The system of record notice will save you a lot of time and money and help your business from facing an unexpected downturn.