Chapter 2 Commercial Leasing Under South Carolina Law

• Library: Practical Guide to Commercial Real Estate in South Carolina (SCBar) (2024 Ed.)

Chapter 2 Commercial Leasing Under South Carolina Law¹

James I. Warren, IIIJay R. HoodenpylCaitlin R. Walker

A. Introduction

This chapter focuses on the key aspects of commercial leases for South Carolina lawyers representing landlords, tenants and lenders in the consideration, preparation and negotiation of commercial leases. The terms "landlord" and "lessor" are used interchangeably in this chapter as well as the terms "tenant" and "lessee." This chapter also highlights some unique aspects of South Carolina law in the area of commercial leasing.

A commercial lease applies to a rental agreement made for the lease of space to be used for a business purpose. Under different types of commercial leases, leased space may be used for office purposes, for the operation of a business selling retail goods or for the storage of goods.

On July 8, 1986, South Carolina enacted the Residential Landlord and Tenant Act (RLTA)² which governs all residential leases. A residential lease applies to a rental agreement made for a dwelling unit. Consequently, the RLTA does not affect nor touch upon commercial leases.

However, while the RLTA does not apply to commercial leases, other state statutes and established case law control both the creation and the nature of the landlord-tenant relationship concerning commercial property. Moreover, the landlord-tenant relationship is determined by a combination of South Carolina property and contract law. The South Carolina Supreme Court, over time, has provided the prerequisites necessary to establish the commercial-landlord relationship. The state supreme court has affirmed that an express or implied contract must exist in order to create the landlord-tenant relationship. Ordinarily, the essential elements of the commercial lease are the grant of possession and exclusive use and enjoyment of the property, definite rent, and a certain term. Nevertheless, the South Carolina Supreme Court has not always held fast to this rule due to the inherent friction created between the contract law concept of a lease being an agreement between landlord and tenant and the property law concept requiring entry by the tenant.

B. The Leasehold Estate

1. Types of Tenancies/Leases

There are three general categories of tenancies in South Carolina law: (1) Tenancies for Years and Tenancies for Terms; (2) Periodic Tenancies; and (3) Tenancies at Will.

a. Tenancies for Years and Tenancies for Terms

A tenant for years is a person using or occupying real estate, other than the owner, for a term of more than one year.³ On the other hand, a tenant for a term is a person using or occupying real estate, other than the owner, under a written or oral agreement.⁴ Therefore, where a written or oral tenancy agreement exists between two parties and provides that the tenancy must expire on a date certain, there is a tenancy for a term. South Carolina law provides that a tenancy for a term of one year or a shorter period of time may be created by an oral agreement.⁵ However, any agreement for tenancy for more than one year is void if not in writing under both a specific statutory provision⁶ and the South Carolina Statute of Frauds.⁷

A key characteristic of a tenancy for term is that it ends without notice on the last day of the term and no additional notice of the termination date is required by the tenant or the landlord.⁸ Under the South Carolina Landlord Tenant Act of 1946, a tenant for a term who holds over after the expiration of the term becomes a tenant at will and the landlord has the option of treating the tenant as either wrongfully or rightfully retaining possession.⁹

b. Periodic Tenancies

A periodic tenancy is one which will last for a certain period of time and will automatically continue for subsequent successive periods of the same length of time.¹⁰ A typical example of a periodic tenancy is a month-to-month lease. In South Carolina, a month-to-month lease may be terminated by either party to the agreement upon 30 days' written notice.¹¹

South Carolina statutes dictate that all tenancies, other than those involving agricultural lands, are deemed month-to-month tenancies unless there is an agreement otherwise.¹²

c. Tenancies at Will

A tenancy at will encompasses every person occupying or using real estate, other than the owner, without any oral or written agreement.¹³ Two key characteristics of a tenancy at will are: (1) uncertainty as to the length of the term; and (2) that either party may terminate the lease with proper notice.¹⁴ A tenancy at will is terminable by any act of ownership on the part of the landlord that is inconsistent with the nature of the estate, such as a conveyance or lease by the landlord, where there is notice or knowledge on the part of the at-will tenant.¹⁵ Additionally, once given 20 days' notice, a tenant at will is required to vacate the property.¹⁶ A tenancy at will can be created when a person occupies property without the owner's permission and the owner waives the tort. By waiving the tort of trespass, the owner becomes entitled to receive a reasonable rental fee from the tenant at will.¹⁷ A tenancy at will can also be created when, following the termination of a lease, a tenant continues to occupy the premises absent a new agreement, thereby constituting a tenant at will.¹⁸

2. Landlord's Title and Reversion

a. Estoppel

When real estate is subject to a lease agreement, the real estate belongs to the landlord, but the landlord's rights in the property are limited.¹⁹ The landlord's reversion is the landlord's interest in the estate that is left to the landlord during the tenant's term.²⁰

South Carolina law recognizes that if there is an agreement that establishes the relationship of landlord and tenant, the tenant is estopped to deny the title the tenant contracted to recognize and therefore cannot raise the question of title to the real estate in an ejectment proceeding.²¹

b. Attornment

Attornment refers to a situation in which a tenant acknowledges a new landlord and agrees to become the tenant of that new landlord.²² By statute in South Carolina, an attornment made with the consent of the landlord is valid.²³ However, the statute nullifies any attempt by a tenant to attorn to a stranger.²⁴

c. Possession

When a landlord transfers real estate subject to a lease, the relationship of landlord and tenant is created.²⁵ In a landlord-tenant relationship, the landlord is deemed to be in possession of the real estate and the tenant is deemed to hold under the landlord's possession.²⁶ Moreover, the landlord retains a reversionary interest in the subject real estate—a reversion in fee simple.

d. Injuries to Reversionary Interest

A landlord may maintain an action against a tenant for waste. Any permanent injury to the property done or permitted by the tenant by acts or omissions that destroy, deteriorate, or materially alter the real estate or improvements constitutes waste.²⁷ The landlord has a cause of action for waste because the landlord's retained reversionary interest has been damaged. However, a landlord may not maintain an action for injury to the leased property where the injury affects only the estate of the tenant.²⁸

C. The Lease

1. The Document

Several South Carolina statutes determine the enforceability of lease agreements within the commercial lease context. The statutory provisions indicate that a tenancy for one year or a shorter period of time may be created by an oral agreement,²⁹ and that any agreement for use or occupation of real estate for more than one year is void if not in writing.³⁰ To constitute an enforceable oral lease, the parties to the agreement must have a meeting of the minds and the agreement must have contemplated the essential elements of a lease.³¹ Moreover, the South Carolina statute of frauds requires that a lease for more than one year must be in writing and signed.³² The statute of frauds requires that the writing reasonably identify the subject matter of the contract, sufficiently indicate a contract has been made between the parties, and state with reasonable certainty the essential terms of the agreement.³³ Of course, under South Carolina case law there are a number of exceptions to the application of the statute of frauds. For example, South Carolina courts have decreed specific performance of oral agreements for acquisition of an interest in land, despite the statute of frauds, where sufficient part performance has occurred.³⁴

It is unnecessary that a formal document be executed to create a valid lease agreement. Instead, the question of whether a lease has been consummated turns on whether or not the parties intended to enter into a lease agreement.³⁵ Moreover, an express agreement is not necessary to create a landlord-tenant relationship as such relation may arise from the implied agreement of the parties and may be established by proof of circumstances authorizing the inference that the parties intended to assume such relation toward each other.³⁶ However, without a contract or agreement between the parties, expressed or implied, a landlord-tenant relationship cannot exist.³⁷

Additionally, South Carolina's Recording Statute provides that leases for a period of more than one year are valid to affect the rights of subsequent creditors or purchasers for valuable consideration without notice only from the day and hour of recordation.³⁸

South Carolina courts have applied the rules of construction relating to contracts when construing leases.³⁹ Generally, lease agreements in South Carolina are liberally construed so as to give effect to the intention of the parties. However, the courts have generally construed a lease more strongly against the lessor and in favor of the lessee, particularly where the lease was prepared by the lessor.⁴⁰

Whether the lease agreement is signed under seal can impact the statute of limitations applicable to any breach of contract action relating to the agreement. As a general rule in South Carolina, a three-year statute...