Definition of a Surrender Agreement
A surrender agreement is an instrument of conveyance, evidencing the voluntary relinquishment of some right or interest, by operation of which that right or interest is surrendered to a person so that the acquired interest replaces the returned interest. Surrender agreements are rarely used without the context of a negotiation or exchange of something of value. Surrender agreements are most commonly used in residential and commercial real estate transactions, in leases, and for the surrender of development rights. But surrender agreements are also common in other business transactions , such as where an incumbent partner and the corporation which he serves drop their respective interests in a company to provide an incentive for continuation employment with the company that will help further its success. A surrender agreement is a mechanism to structure the mutually desired secession of reciprocal obligations among the parties to it, taking into account the respective considerations of the parties, the term of the secession, and the respective future needs and interests of the parties. The secession is both a transfer and an inherently terminative act. In all cases, a surrender agreement is an important tool to consider.
Types of a Surrender Agreement
The above-mentioned obligations (i.e. "in person" and "in rem") are not the only types of surrender agreements. There are also those relating to property leases (lease surrender agreements), agreements related to the rights of patent (patent surrender agreements), rights of employment contracts (employment contract surrender agreements), rights in an invention (invention surrender agreements), rights in trademark, license surrender agreements and those rights in a copyright (copyright surrender agreements). These rights are used by an individual or group of individuals for the accomplishment of a specific purpose and, on the completion of that purpose, the rights are surrendered back to the entity that had initially given such rights to them.
Legal Aspects of a Surrender Agreement
Surrender agreements, just like any other contracts, are governed by contract law. The Standard Civil Jury Instructions shall be referred to as SCRJI. The main concept is that there is mutual agreement of the parties as to the terms of the surrender agreement.
- Agency Element: There must be mutual manifestations of assent, express or implied, on the part of each party as to the terms of the agreement.
- Mental Competence Element: Each party must be able to comprehend the consequences & effect of what he/she’s signing. Each party must be aware of the provisions of the agreement.
- No Undue Influence Element: Surrender agreement must not have resulted from the undue influence, fraud, unconscionable transaction, mental incompetence, or misrepresentation of material fact.
- Consideration Element: Surrender agreement must be supported by adequate consideration. There must be a legal detriment upon the promisee of the contract. There must be a legal benefit for the promissor.
- Intent Element: The parties must intend that the agreement be legally binding at the time it is formed.
- Good faith element: The parties agree to fulfill their obligations they owe to each other under the contract.
Advantages and Detriments of Surrender Agreements
The principal benefit of entering into a surrender agreement is its ability to decisively and efficiently terminate litigation, which often moves at a slow pace in comparison to the outside world. Further, it allows a party to maintain some measure of control over the structure of the post-litigation relationship, whether that means an immediate end to the relationship or a more graduated approach to severing ties (e.g., a wind-down period). It also allows both parties to avoid the expense of lengthy trials and appellate proceedings.
However, a possible drawback (or risk) of a surrender agreement is that it can lead to a premature end to the relationship, even when legally permissible grounds for termination are still many months, or even years, away from arising. In the rush to end the relationship or because of uncertainty about the likelihood of success at a trial on the merits, a party may unwisely enter into a surrender agreement with its eyes closed, only to learn through the following months that it was too early to end the relationship, and that terminating the relationship will not be as simple as a handshake. In such a scenario, a party may become trapped by a surrender agreement; however, this is not a common occurrence in light of the relatively short duration of most surrender agreements and the fact that they are frequently entered into after the parties have sufficient experience in working with each other to assess the state of the relationship.
How to Draft a Surrender Agreement
To create a valuable surrender agreement the property owner must first consult with an attorney and negotiate with the other party (the Deed-holder) to the transaction . The owner, or his/her attorney, then drafts the Surrender Agreement with the following important clauses, among others: 1) Recitals; 2) Property Description; 3) Governing Laws; 4) Reservation of Rights; 5) Indemnification; 6) Notarization; 7) Recording; 8) Special Allocations; and 9) Effective Date. The client’s or attorney’s signature, notarization, and recording by the county are necessary for the agreement to be effective.
Common Situations for Surrender Agreements
Surrender agreements are commonly used in a variety of real estate transactions and other contractual arrangements. Below are some situations where real estate surrender agreements are frequently employed:
Lease Termination
A tenant and a landlord may execute a surrender agreement as an amicable way to end the lease. The agreement may set forth the date of surrender or early termination of the lease, any damages to be paid, provisions for payment of security, and the parties’ indemnification obligations to each other.
Existing Agreements
The parties to an existing contract may enter into a surrender agreement to terminate the contract and to set forth the respective rights and obligations upon the termination. The surrender gives up all of the parties rights under the agreement, other than the rights to indemnification for breach that accrued prior to termination. A typical business deal involves a developer and municipality where a developer is selected from amongst competing proposals to enter into an agreement by which the municipality grants the developer the right to redevelop some property. The developer executes a surrender agreement terminating its rights under the agreement in favor of another developer.
Judicial Foreclosure Action
The lender in a residential foreclosure has the option to seek possession through a judicial proceeding. The foreclosure complaint includes the residential premises within the caption of the complaint. The homeowner is served with the complaint and answer, if any must be filed within 20 days. Once the lender receives a judgment of foreclosure, the lender would then obtain a judgment of possession and proceed to issue a warrant of possession enforcing the judgment of possession, unless waived by a surrender agreement.
Bankruptcy
A lender may enter into a surrender agreement with the bankruptcy trustee whereby the lender agrees to withdraw its proof of claim in exchange for a reconveyance of its interest onto the borrower. In that circumstance, the parties agree to execute a deed vesting title in the borrower, thereby, cancelling the mortgage.
Legal Issues and Errors
Parties negotiating a surrender agreement should consider the impact of the agreement on third parties, including adjoining property owners. If the surrender does not contain proper restrictions, then adjoining land owners may be able to sue for trespass or impairment of their easement rights, thus creating further litigation and possible monetary damages if successful. Additionally, a surrender agreement needs to be carefully evaluated for the overall purpose and consideration. An excessive surrender , beyond what is needed for the current project, may be seen as a wrongful exaction and/or a violation of the law of takings. Again, creating further litigation and possible damages for the value of the land.
Further, once the surrender is recorded, it becomes a deed variances doctrine and can only be overturned if a party demonstrates that some event has occurred (i.e. a change in circumstance) post-recordation.