October 23, 2018

October 23, 2018

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October 22, 2018

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Seal or No Seal? Virginia Supreme Court Decision Should Prompt Closer Scrutiny of Leases

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.

Copyright © by Ballard Spahr LLP

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About this Author

Desmond Connall, Ballard Spahr Law Firm, Washington DC and Baltimore, Real Estate Law Attorney
Partner

Desmond D. Connall, Jr. is a partner in Ballard's Washington, D.C. and Baltimore offices, and heads the Leasing Team in the firm's Real Estate Practice Group. He concentrates his practice in leasing, purchase and sale and development matters, and is particularly experienced in office and retail leasing transactions. Des has worked on many of the most significant real estate projects in the Washington, D.C. region on behalf of anchor tenants, landlords, and developers. He also serves as the firm's leasing counsel.

...

202-661-7642
Katherine Noonan, Ballard Spahr Law Firm, Washington DC, Real Estate Law Attorney
Associate

Katherine M. Noonan represents developers in mixed-use projects, including analyzing project structure and the drafting, negotiation, and recordation of condominium documents. Katie works with developer and association clients with regard to ongoing compliance with governing documents and project operations. She has assisted numerous clients on local law compliance in the disposition of multifamily residential projects. She focuses specifically on rights of first refusal in Montgomery County and Prince George's County, Md., as well as the District of Columbia's Tenant Opportunity to Purchase Act (TOPA).

Katie has represented lenders and borrowers with a variety of energy projects, including solar, hydroelectric, and gas-fired electric generation facilities, addressing the specific real estate issues related to acquisition and financing.

Katie also has significant leasing experience, representing both landlords and tenants in a range of office and retail leasing matters.

Representative matters:

  • Represented national trade association in the negotiation of its headquarter office space in the District of Columbia.

  • Represented national retailer in connection with its acquisition of land and consolidation of parcels for the construction of large distribution center.

  • Represented District of Columbia developer in the creation of high-end residential condominium in Georgetown.

  • Represented multifamily developer with regard to compliance with Montgomery and Prince George's County right of first refusal laws triggered by corporate merger.

  • Represented owner of D.C. multifamily project in connection with TOPA compliance.

  • Represented lender in connection with real estate disposition following foreclosure of mixed-use project in Prince George's County, Md.

  • Represented national corporation in the negotiation of office leases for sites throughout the country.

  • Represented lending institution in connection with real estate matters related to 10-site solar facility loan.

  • Represented local developer in connection with shopping center acquisition and financing.

202-661-7657
Andrew Almand, Ballard Spahr Law Firm, Washington DC, Real Estate and Finance Law Attorney
Associate

Andrew I. Almand concentrates his practice on real estate financing, including multifamily housing transactions financed conventionally and with tax-exempt bonds and loans, agency, portfolio, conduit, warehouse and construction lending and loan servicing. Andrew's representations include GSEs, national agency, portfolio, conduit, warehouse and construction lenders, crowdfunding debt and equity providers and other financial institutions.

Andrew also handles, coordinates, and closes a wide range of commercial real estate transactions, including...

202-661-2261