Recently, the Supreme Court of Virginia held that a 15-year commercial retail lease was unenforceable because it was not executed with the formalities of a “deed” under Virginia law.
The landmark case is The Game Place, L.L.C., et al. v. Fredericksburg 35, LLC, 295 Va. 396 (2018). The landlord, Fredericksburg 35, LLC (“Landlord”), sued its tenant, The Game Place, L.L.C. (“Tenant”) for unpaid rent under a 15-year commercial lease (the “Lease”) after Tenant vacated the premises prior to the expiration of the 15-year term. Tenant, who had been making rent payments to Landlord on a monthly basis for over thirteen (13) years and was in fact current in such payments at the time it vacated the premises, terminated the Lease after characterizing it as a month-to-month periodic tenancy. When Landlord responded with a suit seeking unpaid rent that had accrued since Tenant vacated the premises, Tenant argued that the Lease was not executed under seal—one of the quintessential requirements of a deed—and therefore was not enforceable under Virginia’s Statute of Conveyances, which provides that “[n]o estate of inheritance or freehold or for a term of more than five years in lands shall be conveyed unless by deed or will” (Va. Code Ann. § 55-2). Stated simply, in the Commonwealth of Virginia, a lease for a term of more than five (5) years must be made in the form of a deed in order to be fully enforceable, and deeds must have seals. The seal requirement is fleshed out in Virginia Code § 11-3, which provides that seals can be substituted with (i) a scroll by way of a seal; (ii) an imprint or stamp of a corporate or an official seal on paper; (iii) the use in the body of the writing of the words “this deed” or “this indenture” or other words importing a sealed instrument or recognizing a seal; or (iv) a notarial acknowledgement.
At the trial level, the court rejected Tenant’s argument that the Lease violated the Statute of Conveyances and deduced that certain elements of the Lease such as its verbosity and substance collectively exemplified a sealed instrument and therefore satisfied the requirements of a deed, a finding that the Supreme Court of Virginia has unequivocally shot down.
Subsequently, the Supreme Court of Virginia championed the need for adhering to the deed and seal requirements that are clearly set forth in the Virginia Code and found that the Lease did not constitute a deed because it did not satisfy the seal requirement and, thus, was unenforceable under the Statute of Conveyances. However, at the end of its rationale, the Court aptly stated, “When a lease violates [this requirement], the lease as such cannot be enforced in an action for damages by either party against the other.” Therefore, while the Court invalidated the 15-year term provision set forth in the Lease, it acknowledged that there was indeed a lessor-lessee relationship. Tenant’s possession of the premises, coupled with the monthly rent payments, implied that there was a month-to-month tenancy, and because Tenant paid rent to Landlord through the last month of its occupancy, Tenant had satisfied its rent obligations in full.
So what does this mean for you?
If you are entering into a commercial lease governed by the Commonwealth of Virginia for a term of more than five (5) years, regardless of whether you are the landlord or the tenant, you should consider drafting the lease as a “Deed of Lease,” referring to the Deed of Lease as such within the body of the document and including seals with the parties’ signatures. Keep in mind that in Virginia, all renewal options set forth in a lease will be considered part of the lease term, regardless of whether they are exercised. For example, if the initial term of your lease is three (3) years and there are two (2) renewal options of (3) years each, the lease term will be deemed to be a total of nine (9) years—meaning you should prepare the lease as a sealed Deed of Lease. If your lease runs afoul of the seal requirements, do not despair for all is not lost. As evidenced by Game Place, while the lease term may be deemed invalid, the other provisions of your lease are likely to remain binding on the parties, with the tenancy being implied from the manner (i.e., frequency) in which the rent is paid.