A recent ruling by the Supreme Court of Virginia may invalidate hundreds of leases because they are not under "seal" and therefore do not meet Virginia's "Deed of Lease" requirement. Landlords and tenants should review their Virginia leases to ensure compliance with this pivotal decision.
In The Game Place LLC v. Fredericksburg 35 LLC, the court invalidated a 15-year lease, concluding that an agreement between a commercial landlord and tenant actually constituted a month-to-month tenancy. The Game Place and Fredericksburg 35 were parties to a lease signed in 2002. In May 2014, The Game Place was unable to continue making rent payments, vacated the premises, and attempted to terminate its relationship with Fredericksburg 35.
The Virginia Statute of Conveyances (§ 55-2) states that all leases for a term of more than five years must be in the form of a deed, which includes executing the lease under seal. The Game Place invoked this statute to argue that its lease with Fredericksburg 35 was unenforceable because it did not contain a seal (required by Virginia common law) or a seal substitute (under a Virginia statute relaxing the common law requirement). Fredericksburg 35 countered that the lease was enforceable and sought to recover nearly $70,000 in unpaid rent.
At trial, the court ruled in favor of Fredericksburg 35. On appeal, however, in a thorough opinion, the Supreme Court of Virginia overturned the trial court's decision. The court began its analysis with the Virginia Statute of Conveyances' mandate that an interest in land of more than five years' duration must be conveyed by deed or will. Because this statute incorporates a common law term of art—seal—the court read the common law provisions into the statute. One essential characteristic of a deed is that it is sealed. Historically, seals operated to evidence a deed and attach particular importance not associated with most other contracts.
Over time, the Virginia General Assembly relaxed the seal requirement. Substitutes in lieu of an actual seal include a scroll, an imprint, or stamp with the words "this deed" or "this indenture" in the body of the writing, or noting a clear intent to convey real estate before an officer authorized to acknowledge such a transaction.
The court concluded that the 15-year lease in The Game Place did not include a seal or seal substitute of any kind. For this reason, it failed to satisfy the common law seal requirement under the Statute of Conveyances. In so holding, the court cast aside the 15-year agreement and ruled that the lessor-lessee relationship was a month-to-month tenancy.
The court rejected the trial court's reasoning that the "law looks at substance not form." To the trial court, because the writing "exemplifie[d] a sealed instrument," the seal requirement appeared a mere formality. The Supreme Court of Virginia, however, concluded that courts "cannot jettison 'form' in favor of 'substance,'" because the form provides a framework within which the law may operate.
This case is particularly striking because the result is contrary to both parties' intent when signing the lease. As the trial court likely contemplated, the parties initially intended to enter into a 15-year lease, not a month-to-month tenancy.
The Supreme Court of Virginia put the onus on the Virginia General Assembly to modify the seal requirement, if desired: "[T]he General Assembly has engaged the common-law seal requirement but has never abolished it altogether for deeds governed by the Statute of Conveyances. Whether the legislature should do so is not for us to say. We ask only if the legislature already has; we answer that it has not."
But until such time as the General Assembly takes action, individuals in Virginia with unsealed leases of a term longer than five years may find a possible solution in signing an addendum with all parties to the document. Otherwise, either party might be unable to enforce the lease agreement as written.
Ballard Spahr's Leasing Group regularly assist clients in commercial lease transactions. Our work covers the full range of issues for landlords and tenants nationwide in a variety of industries, who rely on us to protect their interests in the industrial, commercial, office, retail, and special use spaces.
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