Ruling Highlights Importance of Drafting a Deed With Unambiguous Language

Written by: Alan Nochumson

It is not uncommon for a seller of real estate to reserve the right to enjoy the benefits of real estate even after it is sold to a third party.

In Grove v. Lutz, 2021 Pa. Super. LEXIS 2 (Jan. 4, 2021), the Pennsylvania Superior Court recently determined whether a seller to real estate had the right to continue receiving rental payments under the terms and conditions of a written lease that was expressly referenced in the deed transferring the property to third parties.

In 1993, the seller executed a written lease agreement with a tenant to pay rent to the seller in exchange for the tenant’s right to install and maintain a cell communication tower on a portion of the property, the opinion said.

The term of the written lease, including renewal terms, extended until 2019.

In 2003, the seller sold the property, along with all rights attendant to that property, to the buyers.

In the written deed transferring the property from the seller to the buyers, it expressly acknowledged the existence of the written lease encumbering the property at the time and granted to the seller the right to receive the rental payments so due under the written lease “for the additional term extensions as set forth in the lease dated Dec. 21, 1993.

Unaware that the seller sold the property to the buyers, the tenant reached out to the seller to negotiate an extension of the term of the written lease.

In 2015, the seller and the tenant thereafter executed an amendment to the written lease in order to allow the tenant to continue to use the property in consideration for rental payments made to the seller, the opinion said.

Under the lease amendment, if all the agreed-upon renewal terms were duly exercised by the tenant, the tenant would be allowed to lease the property for an additional 40 years or until June 15, 2059.

The seller then filed an action against the buyers and the tenant in the York County Common Pleas Court seeking a judgment declaring that the lease amendment was a valid, binding document and that the seller had the right to collect the rental payments from the tenant under the lease amendment until possibly 2059.

The buyers and the tenant thereafter filed a joint motion for judgment on the pleadings seeking dismissal of the seller’s complaint based upon their respective counterclaims that, as of 2019, when the last renewal term exercised by the tenant in the written lease expired, only the buyers had the right to receive the rental payments from the property.

The seller filed a response in opposition to this motion.

The trial court in Lutz denied the motion for judgment on the pleadings, concluding that, “’because the deed between the parties expressly includes reference to the lease agreement and seller’s reservation of rights to the rental from the tower’, the terms of the [l]ease and the principles of contract law validated the lease amendment.”

The seller then filed her own motion for judgment on the pleadings.

Soon thereafter, the trial court granted this motion, reiterating its reasoning that the deed expressly included a reservation for the seller to lease the cell communication tower to the tenant.

The buyers then appealed the trial court’s ruling to the Superior Court.

The Superior Court in Lutz examined the meaning of the deed.

In doing so, the Superior Court noted the importance of ascertaining and effectuating what the parties themselves intended by examining the meaning of plain words of the deed itself.

Citing to Yuscavage v. Hamlin, 137 A.2d 242 (Pa. 1958), the Superior Court considered the following factors in ascertaining the nature of the interest conveyed: “ …  the nature and quantity of the interest conveyed must be ascertained from the instrument itself and cannot be orally shown in the absence of fraud, accident or mistake and we seek to ascertain not what the parties may have intended by the language but what is the meaning of the words; effect must be given to all the language of the instrument and no part shall be rejected if it can be given a meaning; [and] the language of the deed shall be interpreted in the light of the subject matter, the apparent object or purpose of the parties and the conditions existing when it was executed.”

Referring to the language in the deed in Lutz, the Superior Court concluded that the deed clearly and unambiguously transferred the property to the buyers.

Citing to Willcox v. Penn Mutual Life Insurance, 55 A.2d 521 (Pa. 1947), which stated that the essential attribute of property ownership is the right to “possess, use, enjoy and dispose” of property, the Superior Court in Lutz concluded that the conveyance also included the right of the buyers to lease the property to third parties after the property transfer occurred.

The Superior Court in Lutz also addressed the trial court’s reliance upon the provision in the deed that provided the seller with the right to receive rental payments from the tenant pursuant to the written lease as reserving to the right of the seller to lease the property after she sold the property to the buyers.

The Superior Court in Lutz emphasized that the language of that provision in the deed was to allow the seller to collect the rental payments from the tenant for the last remaining renewal term contain in the written lease.

Noting the trial court’s interpretation of the deed—that the seller held the right to lease the property after the sale—the Superior Court in Lutz deemed this right was not specifically part of the real estate transaction consummated between the seller and buyers and was not mentioned in the deed.

In other words, according to the Superior Court in Lutz, that provision in the deed did not grant the seller to lease the property after the sale beyond the confines of the terms and conditions of the lease arrangement existing at the time of the sale.

Since the seller did not have an interest to transfer to the tenant when she entered into the lease amendment, the Superior Court in Lutz declared the lease amendment as void and of no legal consequence.

As a result, the Superior Court in Lutz concluded that the trial court erred as a matter of law in denying the buyers’ motion for judgment on the pleadings and subsequently granting the seller’s motion for judgment on the pleadings.

Lessons Learned

The Superior Court’s ruling in Lutz highlights the importance of drafting a deed to clearly reflect the intention of the parties.

If the deed contained clear and unambiguous language permitting the seller to collect rental payments from the tenant after the sale concluded, the Superior Court in Lutz would have clearly ruled differently and the seller would be able to collect the rental payments due by the tenant under the lease amendment possibly through 2059.

Clementa Amazan, an associate at Nochumson P.C., is the co-author of this article.

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