Editor’s Note: Legal Corner contains case summaries and analysis of recent court decisions that impact retail leasing and lease administration. These summaries focus on the leasing issues covered in each case and do not include detailed discussions or analysis of the procedural and peripheral issues in the cases.
The Importance of Legal
Technicalities In Lease Execution
The Game Place, LLC v. Fredericksburg 35, LLC, 813 S.E.2d 312 (Va. 2018).
Landlord and Tenant entered into a 15-year lease for premises in Virginia. Tenant vacated prior to the end of the 15-year term and then terminated what it referenced as its “month to month” tenancy. In response, Landlord brought an action for unpaid rent under the lease attributable to the period following Tenant’s vacation of the premises. In defense, Tenant asserted that the written 15-year lease was unenforceable because it did not satisfy the requirements of Virginia’s Statute of Conveyances that applies to leases of more than 5 years. That statute requires that leases of more than 5 years must be conveyed by deed or will. In this instance, the deed lacked conveyancing language in the body of the lease document (e.g., this “deed” or this “indenture”) and the lease was not “sealed” when executed. While the lower court ruled the lease was enforceable because the “substance not form” of the document should prevail. However, this approach was firmly rejected by the Virginia Supreme Court, which held, in part, that in addition to missing the necessary conveyancing intent, “a sealed contract means just that, a contract with a seal.” In this instance, neither party’s signature included either an actual corporate seal or even a statutorily acceptable seal substitute (e.g., notary acknowledgement). The court noted that while the Virginia legislature has over time eliminated the “seal” requirement for many documents, the legislature had not yet done so for deeds. Although the written lease was unenforceable, the court did observe that if a tenant takes possession of space, a landlord/tenant relationship is created, even if the written lease is unenforceable. In situations such as the one in front of the court where the written lease was unenforceable, the court held that a tenant would be deemed to occupy the space under a periodic tenancy, for which the term is tied to the frequency of the required rental payments. Here, prior to vacating the space, Tenant paid rent on a monthly basis, so the court ruled that its tenancy was month-to-month, as had been asserted by Tenant when it vacated the space.