August 2018

Virginia Supreme Court Allows Early Termination of Lease not in Compliance with Statute of Conveyances

Tenants (as well as landlords) seeking an early exit from a Virginia lease of more than 5 years have been given an assist by the Virginia Supreme Court in a recent case causing consternation among commercial real property owners and their mortgage lenders.  The decision in The Game Place, L.L.C. v. Fredericksburg 35, LLC, 813 S.E.2d 312 (Va. 2018), allowed a tenant that wished to get out of its 15-year lease to terminate early on the basis of form over substance. Notwithstanding the clear intent of the parties to create a lease of 15 years, the failure of the lease to be in the form of a deed, as prescribed by the Virginia Statute of Conveyances, rendered it a month-to-month lease, thus, terminable by the tenant when the lease no longer served its business needs.

While those familiar with Virginia leasing practice have long known to draft Virginia leases of more than 5 years in the form of a deed – typically accomplished by calling it a Deed of Lease and reciting that it is a deed of lease within the body of the agreement – the Game Place case provides new guidance as to the potentially serious consequences of failing to comply with this formality.  While this is important legal news to anyone with an interest in leased real property in Virginia, it may be particularly noteworthy for those acquiring, or providing mortgage financing secured by, Virginia commercial real estate.

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