Our loan documentation and closing practice often requires us to review lease agreements as part of our representation of lenders.  Whether the deal involves working capital loans, tenant improvements, startups, or real estate or business acquisition loans with Eligible Passive and Operating Companies, lease agreements seem to always be present.  As interests in land, the validity and enforceability of lease agreements depends on state law.  In Florida, a series of recent cases have made clear the need for attesting witnesses on leases.  Under this standard, a significant number of the leases we review are legally unenforceable for lack of proper witnesses.

In Skylake Insurance Agency, Inc. v. NMB Plaza, LLC, a 10-year office building lease was signed on behalf of the landlord, a limited liability company,  by a member of the company and on behalf of the corporate tenant by the president of the tenant.   Prior to completion of the building and delivery of the premises to the tenant, the landlord repudiated the lease arguing the lease did not contain the necessary witnesses to its signature on the lease.  The tenant brought action against the landlord to enforce the lease, but lost at trial with the court holding that the lease was unenforceable due to the lack of witnesses as required under statute.  In particular, the court cited Section 689.01, Florida's land conveyance statute, which provides that no estate of one year or more shall be made other than in "writing, signed in the presence of two subscribing witnesses."

Initially, the appellate court held that Florida's business entity statute governed the actions of a limited liability companies, including who could bind the company and how.  On rehearing the appellate court withdrew and reversed the original opinion (based in large part on an amicus brief filed by The Florida Bar's Real Property, Probate & Trust Law Section), and held that two subscribing witnesses were required to make the lease enforceable.  The court concluded that while Florida's business entity statute generally sets forth whose signatures a third party can rely on in dealing with a limited liability company, Section 689.01 of the Florida Statutes governs the formalities for conveying interests in real property.  Under its plain meaning, the statute is applicable to any conveyance of real estate, including leases of more than a year.

A similar result obtained in S & I Investments v. Payless Flea Market where the parties were negotiating the renewal of an existing lease.  There, the renewal lease was signed by only one witness.  The tenant, who had kept the original renewal, brought a breach of lease action against the landlord.  The lower court held that the renewal did not need to be signed by two witnesses because it was a "renewal," rather than a "new" lease.  On appeal, the District Court reversed the trial court's judgment, and held that, irrespective of whether the lease was deemed a new or a renewal lease, two subscribing witnesses were required to make the lease valid and enforceable.  

Under prudent lending practices, Lenders should review all lease agreements carefully to ascertain their validity and enforceability.  This exercise differs with each jurisdiction as laws governing interests in land vary greatly from state to state.  Laws governing business entities may also impact the enforceability of the lease.  In Florida, Lenders must make sure all leases, and renewals thereof, are executed by a duly authorized individual whose signature is witnessed by two (2) separate witnesses, who should sign opposite the person's name.  This requirement applies to both landlords and tenants, natural persons or legal entities.