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Nine Points of the Law

Monday, October 25th, 2010

The mysterious rights of a party in possession.

KOKOMO, IN–When Park P, LLC, bought this 254-unit apartment complex they expected to inherit about 250 tenants. But there was an unexpected problem.

The Park Place apartments at Kokomo

Within the complex are two laundry rooms, housing 45 commercial, coin-operated laundry machines. In each laundry room there was a sign saying the machines were owned and operated by Commercial Coin Laundry Systems “pursuant to a written lease.” Each machine also bore a 3×5-inch label with the same information. The signs and labels included Commercial Coin’s logo, office telephone number, and a 24-hour toll-free service number.

Park P had purchased the complex in April 2005. Several weeks later, the owner of Park P wrote a letter to Commercial Coin complaining about maintenance of the machines and hazardous conditions in one of the laundry rooms. The owner said he was willing to honor “the agreement” that Commercial Coin had with a prior owner, but wanted Commercial Coin to agree in writing to “accept full liability for any eventual accident.”

Inside, some of the 254 units

Commercial Coin did not respond to the letter, but continued to operate the machines and pay rent to Park P. So it happened that, in February 2008, Park P filed suit for trespass, based on Commercial Coin’s refusal to remove its machines and vacate the premises.

Commercial Coin answered, saying it has a written lease giving it rights to operate without interference by Park P.

Problem is, the lease was not recorded, and Park P claims it is not legally bound by the past agreement.

On a motion for summary judgment, the trial court ruled in favor of Park P, saying the new owner was not subject to terms of the off-record lease. The court cited an Indiana statute, providing that a lease of real estate for a period longer than three years must be recorded in order to bind a subsequent good faith purchaser.  Commercial Coin appealed.

The Court of Appeals reversed, and remanded the case for further proceedings.

The Court reasoned that a good faith purchaser, of the type protected by the statute, must be one without notice of rights asserted by a party in possession. The court explained that notice sufficient to bind a purchaser could be actual, constructive (imparted by county land records), or implied (imparted by occupancy or possession of the land). In this case, the question for trial would be whether Commercial Coin’s occupancy was so apparent that Park P should have inquired to discover its alleged rights under the off-record lease.

Moral:  Possession, they say, is nine points of the law.

The old saying, rooted in English common law, has little meaning today except as shown by this case.

American courts uniformly hold that a purchaser of land, or a mortgage lender, may be subject to rights of parties in possession. It may be a lease, an option to purchase, right of first refusal, easement–whatever.

To know the condition of title to land, one should look not only to land records but to the land itself.

The case is Crown Coin Meter v. Park P, LLC, 934 N.E.2d 142 (Ind. App. 2010).