The Virginia Supreme Court has ruled that real estate leases over five (5) years in length are unenforceable, unless they are “under seal,” use the words “this deed, or this indenture” in the body of the document, or are notarized. The recently decided case is The Game Place, L.L.C., et. al. v. Fredericksburg 35, LLC, Virginia Supreme Court, May 10, 2018, Record No. 170631.
This decision does mean that many leases with terms over five (5) years will be unenforceable. All landlords and tenants should review all of their leases, identify the leases over 5 years, and determine how many of them may be unenforceable. Let us know if you need any help with this.
Although something of a shock, a review of the Supreme Court opinion reveals that it should not really be surprising. Virginia Code § 55-2 (Statute of Conveyances) 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.” This means that any document conveying ownership of real estate or creating a tenancy of more than five years must be a “deed.” A deed has to be a “sealed” writing.[i] A simple “lease” is insufficient and unenforceable if it is more than 5 years in length.
The use of a “seal” is a very antique practice that dates back to the English common law. It was adopted in the United States, along with all the English common law at the formation of the United States. At that time, a deed had certain defined characteristics. One of them was that it had to be a “sealed” writing. A “seal” was a physical imprint, often in wax. This practice originated at a time when most people were illiterate and could not sign their names. A document did not need to be signed if it was sealed. Over time Virginia, and most other states, have legislatively reformed the law, creating “substitutes” for an actual seal. Under the Virginia Code, these substitutes include (1) an imprint or stamp “of a corporate or an official seal on paper” (2) the use in the body of the writing” of the words “this deed” or “this indenture,” or other words “importing a sealed instrument” or recognizing a seal”; or (3) a proper acknowledgement of a document clearly demonstrating an intent to convey real estate “before an officer authorized to take acknowledgments of deeds” [a notary public].[ii]
In modern American English, this means that any lease over five years must use the words “deed of lease” in the agreement (rather than just “lease” or “lease agreement”), or must be a notarized document. The common practice of using the word “SEAL”” next to a signature may be sufficient as “words importing a sealed instrument” or recognizing a seal.” Using the word “deed” only in the title of the document is insufficient. The words “this deed” or “this indenture” must appear in the body of the agreement. Of course the safest practice in the future will be to do all of these things. Identify every lease as a “deed of lease” in the body of the agreement, use the word “Seal” next to the signature and state “signed and sealed this ____ day of ____” prior to the signature, and have all leases notarized. It is probably the best practice to do all these things on all lease forms, no matter what their length.
In The Game Place case the landlord leased space in a commercial shopping center in September 2000. The parties executed a 15-year lease requiring monthly payments. The lessor-lessee relationship continued without contest until years later when The Game Place found itself unable to keep up with the rent payments. In May 2014, The Game Place vacated the premises and terminated what it characterized as “its month-month periodic tenancy.” The Game Place was current on its rent at that time.
The landlord filed a lawsuit, against the tenant and the individual guarantor, seeking unpaid rent that had accrued since The Game Place had vacated the leasehold space. The trial court entered final judgment against The Game Place and the individual guarantor, jointly and severally, for $68,610.44 in unpaid rent and $17,152.61 in attorney fees.
The trial court had held that the lease met requirements of a deed because “[t]he seventeen page Agreement of Lease exemplifies a sealed instrument . . . . even though it is not referred to as ‘this deed’ or ‘this indenture.’ ” The trial court reasoned that “[t]he law looks at substance not form. The subject lease could just as easily have been entitled ‘Deed of Lease’ or ‘Lease Indenture.’ ”
The Virginia Supreme Court, however, held that the length of the lease document is irrelevant. The lease document either qualifies as a deed or it does not. The Virginia Supreme Court also stated that the title of the lease document is also irrelevant. The words “this deed” or “this indenture” must appear in the body of the instrument, not merely in the title.[iii]
The Virginia Supreme Court did not wholly ignore the lessor-lessee relationship. The invalidity of the lease was caused solely by creating a lease term exceeding five years. The lease agreement still regulates the terms of the tenancy in all respects, except as to the duration of the term. When the tenant occupied the premises, the lease agreement could be enforced, but only as a month-to-month tenancy.
A copy of The Game Place, L.L.C., et. al. v. Fredericksburg 35, LLC opinion is attached to the copy of this Newsletter on our website at http://www.fullertonlaw.com/newsletters.
[i] Virginia Code § 55-48.
[ii] Virginia Code § 11-3. This statute does not abolish the seal requirement. Instead, it relaxes the seal requirement by offering a limited list of specific substitutes for a seal. These substitutes include (1) “a scroll by way of a seal”; (2) an imprint or stamp “of a corporate or an official seal on paper or parchment”; (3) the use in the “body of [such] writing” of the words “ ‘this deed,’ or ‘this indenture,’ or other words importing a sealed instrument” or recognizing a seal; or, finally, (4) a proper acknowledgement of a document clearly demonstrating an intent to convey real estate “before an officer authorized to take acknowledgments of deeds.” Id. The statute does not identify when a seal is necessary but instead only addresses ways to make a written instrument compliant with the seal requirement if either the common law or a statute require a seal.
[iii] Virginia Code § 11-3.