SCV: 15-year lease without seal was unenforceable

A long-term commercial lease with neither a common-law seal nor statutory seal substitutes was effectively month-to-month after a five-year term, and the trial court erred in focusing on “substance not form” to enforce the 15-year term.

Background

In 2000, a real-estate partnership leased commercial space to Nicol Inc., with monthly payments under a 15-year lease. The partnership conveyed the leasehold to the Carl D. Silver Company and dissolved itself in 2001.

In 2002, Nichol assigned the lease to The Game Place. Though the partnership had ceased to legally exist, it executed the assignment as “LANDLORD” with the signature line stating, “By: Silver GP, Inc., General Partner.” The following month, the Silver Company conveyed the property to Fredericksburg 35.

The lease relationship continued until 2014, when The Game Place vacated the premises and terminated what it characterized as its “month-month periodic tenancy.” Fredericksburg 35 sued for unpaid rent that had accrued since the purported termination. The Game Place demurred, arguing that the lease didn’t comply with the statute of conveyances and was thus unenforceable. The trial court overruled the demurrer and awarded back rent of $68,610 in unpaid rent and, pursuant to a fee provision in the lease, $17,152 in attorneys’ fees.

Seal requirement

Code § 11-3 relaxes the historical common-law 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.

Unsealed lease

The 15-year lease in this case didn’t include a seal of any kind or any of the specific seal substitutes recognized in Code § 11-3. Nevertheless, the trial court held that the lease “me[t] the requirements of a deed” because the “17-page Agreement of Lease exemplifies a sealed instrument as alluded to in § 11-3 even though it is not referred to as ‘this deed’ or ‘this indenture.’” The trial court reasoned that “law looks at substance not form. The subject lease could just as easily have been entitled ‘Deed of Lease’ or ‘Lease Indenture.’” This court disagrees, for several reasons.

First, under the common law, a sealed contract means just that: a contract with a seal. Its brevity or verbosity reveals nothing about whether it is sealed or unsealed.

Second, by statute, the words “this deed” or “this indenture” must appear in the instrument’s body, not merely the title. That the parties could have easily complied with this rule is hardly a basis for excusing one who doesn’t comply even with such minimal requirements. If anything, the opposite is true.

Moreover, notwithstanding trial court’s aphorism that “law looks at substance not form,” the legal system is a virtual architecture of rules that necessarily draw lines. While those lines may seem arbitrary at the margins, they create a structure that, as a systemic whole, provides predictability and stability.

Here, the trial court’s reliance on the substance-over-form maxim effectively abolished the seal requirement for a 17-page lease. What about a 10-page lease or, for that matter, a very concise 5-page lease? Are lengthy boilerplate leases to be favored over succinct leases tailored to a specific transaction? Before asking where to draw the substance/form line, one must first ask who has the power to draw it. In this context, the seal requirement comes from centuries of common-law precedent. The seal substitutes are from the General Assembly. Courts have no authority to summarily dismiss either.

Deference to the legislature is especially warranted on the subject of sealed instruments because it has specifically modified the common law in various ways without abolishing the seal requirement. Rather than deciding whether the legislature should do so, this court asks only if the legislature already has. And it has not.

Saving statute

Contrary to Fredericksburg 35’s contention, Code § 55-51 saves only deeds that “fail to take effect by virtue of this chapter.” Nowhere in Chapter 4 of Title 55 is there a statutory requirement that deeds be under seal. That requirement, as earlier observed, comes from the common law and is incorporated into the definition of “deed” in the Statute of Conveyances, neither of which can be found in Chapter 4.

Neither Code § 55-57 nor Code § 55-48 contain seal requirements that Code § 55-51 operates to suspend. Neither imposes a seal requirement on deeds, which the common law and the Statute of Conveyances have already accomplished. These provisions only offer recommended language — purely permissive, not mandatory — for deeds already required to be under seal. The presence or absence of either statute has no effect on the seal requirement.

Remedy

When a lease violates the common-law seal requirement, the lease as such cannot be enforced in an action for damages by either party against the other. But the ability to repudiate doesn’t mean that a court should wholly ignore the relationship that may have been created. The invalidity of the lease in this case was caused solely by creating a lease term exceeding five years.

Once the invalid 15-year term is excised from the lease, the tenancy created is implied from the manner in which the rent is received – here, on a monthly basis during the entirety of the tenancy. The tenant’s occupation and monthly payments thus imply a month-to-month tenancy. As The Game Place made monthly payments until it ended the lease, it had no rent obligation to Fredericksburg 35 thereafter.

Reversed and remanded.

The Game Place LLC v. Fredericksburg 35 LLC, Record No. 170631, May 10, 2018. SCV (Kelsey), from Fredericksburg Cir. Ct. (Willis). VLW No. 018-6-035, 19 pp.