Underwriting Q&A: What is the correct exception in Schedule B when finding a memorandum [of lease, of agreement, etc.] recorded in the Public or Official Records which affects the property? When can this exception be removed?

A:  The exception would properly read as follows:

 “Terms, conditions and stipulations of the [lease or agreement] as evidenced by Memorandum of [Lease/Agreement/etc.] recorded as [document/instrument] in the [Public/Official] Records of ______ County,  [State]  .’   [Additional information such as the parties to the memorandum and the dates of execution and recording are always helpful as well.]

A memorandum of lease or memorandum of agreement is a summary of a lease/agreement between two or more parties. This document is recorded in the public records to put the public on notice of the existence of an underlying lease/agreement. It allows for the terms of the lease/agreement to remain confidential while disclosing very limited information about the lease/agreement to the public. Only when there is an exception to the terms, conditions and stipulations of the underlying lease or agreement as evidenced by a recorded memorandum is there a proper exception from the coverage of the title policy. Title insurance policy claims have arisen because an exception to a memorandum is arguably limited to only the information and matters set out on the memorandum and does not include within the exception the underlying terms, conditions and stipulations of the lease or agreement, and consequently falls short of an exception for the entirety of the document. To only reference the memorandum in the exception and not the underlying lease/agreement would potentially limit the exception to only the information reflected in the memorandum. 

When a request is made to remove an existing exception for a Memorandum of Lease, the Agent will need to obtain the underlying lease/ agreement. After reviewing the underlying lease/agreement, if it can be determined with certainty that the lease / agreement is terminated, only then can the exception for the recorded memorandum be removed from the policy. If it is determined that the terms, conditions, and covenants of the lease / agreement continue to run with the land, the exception cannot be removed. As always, consultation with Underwriting Counsel prior to removing an exception is welcomed and encouraged.