Relating to Real Estate

Do you have a commercial lease for real property in Virginia with a term in excess of five years? If so, does it say “this deed” or “this indenture” in the body of the lease? If not, is it “under seal;” that is, does it contain a corporate seal? Does it have an acknowledgment? If the answers to these four questions are “yes,” “no,” “no,” and “no,” then your lease may be voidable by either the landlord or the tenant. This was the holding of the Supreme Court of Virginia on May 10, 2018, in Game Place, L.L.C. v. Fredericksburg 35, LLC, 295 Va. 396, 813 S.E. 2d 312 (2018).

The Game Place, L.L.C. was the successor tenant of a 15-year lease that commenced in 2000, and Fredericksburg 35, LLC was the successor landlord under the Lease. In 2014, Game Place, which was current on its rent at the time, vacated the premises and wrote to Fredericksburg 35 that it was terminating its “month-to-month periodic tenancy.” Fredericksburg 35 sued Game Place in the Circuit Court of the City of Fredericksburg for rent that accrued after the termination. The circuit court held for the landlord, awarding damages for unpaid rent and attorney’s fees as provided in the lease. On appeal, the Virginia Supreme Court reversed.

According to the Supreme Court of Virginia, a lease for more than five years must satisfy all of the technical requirements of a deed that are set forth in the Statute of Conveyance. These requirements go back more than 300 years in Virginia. The court held that such leases must include a seal or one of the following statutory substitutes for a seal, as set forth in Virginia Code §11-3:

1. “a scroll by way of a seal” [a “scroll” is a written mark made in place of a seal];
2. an imprint or stamp “of a corporate or an official seal on paper or parchment”;
3. the use in the “body of [such] writing” of the words “‘this deed,’ or ‘this indenture,’ or other words importing a sealed instrument,” or recognizing a seal; or
4. a proper acknowledgment of the document clearly demonstrating an intent to convey real estate “before an officer authorized to take acknowledgments of deeds.”

Note that if the title of a lease is “Deed of Lease” or “Indenture of Lease,” but those words do not appear in the main portion of the document, the lease does not comply with the Virginia standards.

To reach its conclusion, the Supreme Court of Virginia studied the history of seals as essential components of deeds back to the conquest of England (recall that was in 1066) by the Normans (according to Blackstone, “a brave but illiterate nation”). For parties to commercial instruments, remnants of this concept are still viable in Virginia now.

Even though the court held the 15 year lease between Game Place and Fredericksburg 35 to be unenforceable, it recognized that there was a landlord-tenant relationship between the parties. The court determined the tenancy was month-to-month because the tenant was paying rent monthly. Because Game Place had paid rent through the month of its termination, it had no liability for additional rent.

Practice Pointers

What should you do if you find yourself with a Virginia lease for more than five years that does not meet the requirements of the Game Place case? It depends on how you feel about the lease.

1. If you have been looking for a way to terminate your lease with little liability, this might be your chance. Show the other party to the lease a copy of the Game Place case (or this article) and tell the other party that the gig is up.
2. If you like your lease but you think that the other party may be happy to get out of its obligations early, do not tell the other party about the Game Place case (or this article) and hope that it does not find out on its own. Remember, the lease is voidable - not void. This means that unless and until a party moves to terminate the lease, it is enforceable.
3. If you and the other party are both currently satisfied with your lease, but you are concerned that things could change in the future, you might want to take steps to comply with the requirements of Virginia law. This could include preparing a lease amendment or taking other action.

And if you plan to enter into a lease in Virginia for more than five years, be sure to comply with Game Place!

For questions, contact Ed Levin (410) 576-1900 or Danielle Zoller (410) 576-4036.