In May 2018, the Supreme Court of Virginia ruled in The Game Place, L.L.C. v. Fredericksburg 35, LLC, 813 S.E.2d 312 (Va. 2018) that a 15-year lease was unenforceable because it did not satisfy the technical requirement of Virginia’s Statute of Conveyances, which requires a lease of more than five years to be in the form of a deed. As a result, the lease was only enforceable as a month-to-month tenancy and the tenant was permitted to walk away from its long-term commitment.
In 2002, The Game Place assumed an existing 15-year lease that was originally executed in 2000. In 2014, The Game Place vacated the premises, stopped paying rent, and notified the landlord that it was terminating its “month-month periodic tenancy.” The landlord sued for breach of the lease and for unpaid rent. The Game Place relied on the Statute of Conveyances, Va. Code § 55-2, which states 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.” Since the lease was for a term of 15 years, it was subject to the Statute of Conveyances and needed to meet the standards of a deed. Virginia common law requires a deed to have a seal affixed in order for it to be valid. Virginia Code § 11-3 expands what may constitute a valid seal to include (1) a scroll, (2) an imprint or stamp of a corporate or an official seal, (3) the use in the body of the document of “this deed” or “this indenture” or other words importing a sealed instrument or recognizing a seal, or (4) a proper acknowledgement of a document clearly demonstrating an intent to convey real estate “before an officer authorized to take acknowledgements of deeds.”
The Game Place lease did not include a seal which would have satisfied the common law requirement so the lower court looked to the § 11-3 substitutes. Lacking a perfect match, the lower court employed the common legal axiom of “substance over form” and deemed the conveyance valid because “the seventeen-page Agreement of Lease exemplifies a sealed instrument as alluded to in Va. Code § 11-3 even though it is not referred to as ‘this deed’ or ‘this indenture’” (emphasis added). The Supreme Court of Virginia summarily rejected this view and instead reinforced the bright line requirements of Va. Code § 11-3 and § 55-2 and found the lease to be invalid because it lacked a seal or § 11-3 substitute.
Invalidity due to the Statute of Conveyances does not nullify the entirety of a lease. In Game Place, only the offending portion of the lease, i.e., the 15-year term, was deemed invalid and struck from the lease. When the term of a lease is struck, the tenancy that is created as a result is implied from the manner in which rent is received. Thus, the court found The Game Place was in a month-to-month tenancy because they paid rent monthly, and because The Game Place had paid rent through the last month of occupancy, they were able to terminate the month-to-month tenancy with no further rent obligations.
Game Place lays out the rules a long-term lease must follow to be valid in Virginia. As set forth above, if the term is longer than five years, the lease must be accompanied by a seal or § 11-3 substitute, failing which the tenancy created is implied from the rent payment schedule. As a result, landlords, tenants, and lenders in Virginia should review their leases that are longer than five years and confirm that they have a valid seal or a permitted substitute, such as language referring to the document as “this deed” or “this indenture” as allowed by § 11-3. If not, the parties should consider entering into an amendment to satisfy these requirements and avoid having a landlord or tenant terminate the lease early.
UPDATE: New Rules of the Game (Place)
In July 2018, we discussed a Virginia Supreme Court decision, Game Place, L.L.C. v. Fredericksburg 35, LLC, 813 S.E.2d 312 (Va. 2018), that ruled a 15-year lease was unenforceable because it did not satisfy the technical requirement of Virginia’s Statute of Conveyances, which requires a lease of more than five years to be in the form of a deed. This decision ultimately resulted in the tenant being permitted to walk away from its long-term commitment because the lease was only enforceable as a month-to-month tenancy. In response to this decision, we wrote: “As a result [of this case], landlords, tenants, and lenders in Virginia should review their leases that are longer than five years and confirm that they have a valid seal or permitted substitute, such as language referring to the document as ‘this deed’ or ‘this indenture’ as allowed by [Virginia law]. If not, the parties should consider entering into an amendment to satisfy these requirements and avoid having a landlord or tenant terminate the lease early.” Due to a recent law enacted by the Virginia General Assembly in response to Game Place, this advice is no longer necessary.
Virginia House Bill 2287 and the identical Virginia Senate Bill 1422 were signed into law by the governor on February 13, 2019, and took effect immediately thanks to an emergency clause in the bills. The bills specify that a lease conveying a non-freehold estate in land is not rendered unenforceable by the fact that the conveyance was not in the form of a deed. Further, any lease previously executed and still in effect will not be rendered invalid because it was not in the form of a deed. The bills also replace all references to “deed of lease” in the Virginia Code with the term “lease.”
To see the full, redlined changes to the Virginia code, click here.