Virginia Supreme Court Requires Formalities of a Deed for Long-Term Leases

June 15, 2018

The Virginia Supreme Court recently found a 15-year lease unenforceable because it was not executed with the formalities of a “deed” in accordance with Virginia law. 

Game Place, L.L.C. v. Fredericksburg 35, LLC, 813 S.E.2d 312 (Va. 2018) concerned a retail tenant that vacated its premises and attempted to terminate its lease prior to the expiration of a 15-year term. The landlord sued the tenant and its guarantor for unpaid rent. At trial, the tenant argued the lease was unenforceable because it was not in the form of a “deed” as required by Section 55-2 of the Virginia Code (also known as the “Statute of Conveyances”).

The trial court ruled in the landlord’s favor, emphasizing “substance over form” and finding that the lease met the requirements of a deed because, among other things, it was a lengthy (17-page) document that exemplified a sealed instrument and could just as easily have been called a “deed” or “indenture.” On appeal, the Virginia Supreme Court disagreed, overruling the trial court and finding that the formal requirements of the Statute of Conveyances must be satisfied in order for a lease of more than five years to be valid.

The Statute of Conveyances provides in relevant part 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” (emphasis added). At common law, a “deed” was required to contain a wax-imprinted seal or a scroll. However, the Virginia legislature has expressly delineated several acceptable substitutes for a formal seal, all as set forth in Section 11-3 of the Virginia Code. Utilizing any one of these substitutes in drafting a lease will cause it to be a “deed”: (1) a “scroll by way of a seal”; (2) an imprint or stamp of a “corporate or an official seal”; (3) the use in the body of the document of the words “this deed” or “this indenture,” or other words importing a sealed instrument or recognizing a seal; and (4) a proper acknowledgement “by an officer authorized to take acknowledgments of deeds.”  

In Game Place, the lease in question did not contain a formal seal or any of the acceptable seal substitutes described in Section 11-3. Accordingly, the Virginia Supreme Court found that the lease was not a “deed,” and as a result, either party was entitled to repudiate the lease at any time. Such repudiation did not terminate the tenancy altogether, but it converted it into a periodic tenancy coinciding with the rent payment periods provided in the lease. Because the tenant in Game Place was required to pay rent monthly and had paid its rent through the end of the month in which it vacated the premises, it had no further obligation to the landlord.

In an effort to solve this problem for McGuireWoods clients, the firm’s lobbying group,  McGuireWoods Consulting, is creating a coalition that will work closely with the Virginia legislature to identify ways to protect current and future leases. If you are interested in being part of the coalition, or if you have further questions about this issue, please reach out to any of the individuals listed below.