Last May, the Virginia Supreme Court issued its’ opinion in Game Place, LLC v. Fredericksburg 35, LLC, which in many ways upset the proverbial apple cart within Virginia’s real estate industry. In the Game Place case, the Court held that any businesbuslease in excess of 5 years falls under Virginia’s Statute of Conveyances (§55-2), and therefore must be made “by deed.” This, in turn, required that the document be made ‘under seal.’ Historically, this meant that the document had to bear an actual wax seal. Over time, this practice became less prevalent, and the Virginia General Assembly adopted Virginia Code § 11-3, which allows for alternative methods to execute a document ‘under seal.’ These included “a scroll by way of a seal” (namely, a written mark next to the signature indicating a seal), the use in the body of the document of the words “this deed,” or notarization of the document. See Va. Code § 11-3, Game Place, L.L.C. v. Fredericksburg 35, LLC, 295 Va. 396, 407 (2018). Thus, by requiring that leases in excess of 5 years be made “by deed,” the Supreme Court held that any such lease had to exhibit at least one of the seal-substitutes enumerated in Virginia Code § 11-3. In the Game Place case, the lease lacked any such formality, and the Court therefore ruled that it was invalid and could not be enforced by either party. Id. at 414. Instead, the agreement created an implied tenancy as to the term, based on the frequency of lease payments. Id.
Unsurprisingly, this decision was unsettling to the real estate industry in the Commonwealth. Perhaps acknowledging the broad-reaching effect of its holding, the Court noted in its decision that it was simply applying the controlling statutes as written, and that “the General Assembly…has never abolished [the common-law seal requirement] for deeds governed by the Statute of Conveyances. Whether the legislature should do so is not for us to say.” Id. 411.
This month, the General Assembly answered this call to action, by enacting HB 2287, which was in direct response to the Game Place case. This bill was the result of a broad-reaching effort to legislatively address these issues created by Game Place. The Virginia Bar Association worked with a large group of stakeholders to create a legislative solution that exempted leases from the Statute of Conveyances and the formalities it requires. The bill also contained an emergency clause, allowing it to take immediate effect upon signature by the Governor.
On February 13, 2019, the Governor signed the bill and the new law went into immediate effect. Full text of the language of the new law can be found here. The new law amends the Statute of Conveyances (§ 55-2) such that leases and any other “written document conveying a non-freehold estate in land” no longer need to be in the form of a deed. As a result, leases no longer need to be “under seal” or exhibit one of the formalities prescribed by Virginia Code § 11-3. This is intended to remove the need to make any amendment to existing leases in reaction to Game Place. Moreover, the new law states that it applies both prospectively, to leases entered into after enactment of the legislative fix, as well as retrospectively, to any lease “entered into before, and which remains in effect as of” the date of enactment. Va. Code § 55-2(B).
Of course, the legislative fix might not have come soon enough for some. As with any agreement, various factors will establish whether a lease between landlord and tenant is valid and enforceable. If you have any questions, please contact Sands Anderson’s Commercial Real Estate Team.