In February of 2019, the Governor of Virginia signed emergency legislation to immediately eliminate the unrest created by the opinion of the Virginia Supreme Court in The Game Place, LLC, et al. v. Fredericksburg 35, LLC, 295 Va. 396 (2018). In the Court’s May 10, 2018 opinion, the Court strictly interpreted Virginia Code § 55-2 (the Statute of Conveyances) to reach the conclusion that any lease agreement having a term of longer than five (5) years must be made by a “deed” or otherwise be executed under seal. The Court further concluded that a long-term lease agreement lacking these formalities is unenforceable as a matter of law, and (in the case of a tenant that pays rent monthly) creates only a month-to-month tenancy that can be terminated by either party on 30 days notice. The Court applied its reasoning to reverse a circuit court opinion which enforced a 15 year lease against a tenant that had vacated the premises prior to the expiration of the lease term.
The decision in Game Place sent shockwaves through the commercial leasing world, as many landlords do not style their leases as deeds and/or do not execute leases with the formality of a seal. The decision opened the door for both landlords and tenants to potentially get out of long-term leases. Many landlords scrambled to audit their lease files and rectify leases that did not meet the mark. Many tenants used the decision as an opportunity to terminate leases and/or negotiate better terms.
As a result of the unrest and uncertainty created by the decision, as well as the sizeable number of leases affected by the Court’s decision, the Virginia legislature passed the emergency legislation to eliminate the requirement that a lease agreement having a term of longer than five (5) years be made by a deed. The new law closes the chapter on a period of unrest during which many landlords and tenants lost, or stood to lose, the benefit of the bargains they had struck in signing seemingly enforceable commercial leases.
Residential Security Deposits in Virginia: Recent Changes in the Law
Recently, the Virginia legislature has enacted changes to the Virginia Code with respect to the laws relating to security deposits maintained by residential landlords in Virginia. It is important that all landlords review their practices with respect to security deposits in light of the changes in the law. This article will provide a brief outline of some of the changes.
By way of background, since 2017, the Virginia Residential Landlord and Tenant Act (the “VRLTA”) applies to all residential tenancies in Virginia, by default. However, a landlord that owns no more than two (2) dwelling units subject to a rental agreement can “opt out” of the VRLTA by expressly stating so in the rental agreement with the tenant. If the “opt out” language is missing from the rental agreement, then the VRLTA will control.
Prior to 2017, the express “opt out” clause was not required, and tenancies for landlords owning only one or two rental properties were, by default, not subject to the VRLTA. Many landlords are unaware of this “opt out” requirement, and as a result, subject themselves to the VRLTA. It is generally accepted that the VRLTA is more favorable to tenants than the pre-existing laws governing the relationship between landlords and tenants (the “pre-existing laws”). The pre-existing laws, as amended, continue to govern residential tenancies that are not subject to the VRLTA.
That said, the legislature has recently adopted amendments to the pre-existing laws that are intended to eliminate discrepancies between the VRLTA and the pre-existing laws. For example, in 2017, the Virginia legislature enacted Virginia Code § 55-225.19, which governs security deposits for residential tenancies not subject to the VRLTA. This statute largely mirrors the statute governing security deposits for residential tenancies that are subject to the VRLTA (Virginia Code § 55-248.15-1). As such, when it comes to security deposits, the landlord will have the same limitations and obligations regardless of whether the VRLTA is applicable to the tenancy. This is a significant shift from the pre-2017 framework, which allowed landlords significantly more discretion with respect to security deposits for tenancies not governed by the VRLTA.
Below is a summary of the landlord’s obligations with respect to security deposits for residential tenancies, which obligations cannot be modified in the rental agreement:
- A landlord may not demand or receive a security deposit in an amount or value in excess of two months’ periodic rent.
- Upon termination of the tenancy, the security deposit may be applied solely by the landlord to the following items: (i) the payment of accrued rent and reasonable charges for late payment of rent specified in the rental agreement; (ii) the payment of the amount of damages that the landlord has suffered by reason of the tenant’s noncompliance with the requirements of the Virginia Code pertaining to maintenance of the dwelling unit; (iii) other damages or charges as provided in the rental agreement; or (iv) actual damages for breach of the rental agreement as set forth in Virginia Code § 55-248.35 (for tenancies subject to the VRLTA) and Virginia Code § 55-225.48 (for tenancies not subject to the VRLTA).
- The security deposit and any deductions, damages and charges shall be itemized by the landlord in a written notice given to the tenant, together with any amount due, within 45 days after the termination date of the tenancy. If the tenant improperly terminates the tenancy and vacates the dwelling unit prior to the expiration of the rental agreement, the 45-day notice requirement is still applicable from the date the tenant vacates (but the landlord may retain the security deposit to apply against the tenant’s financial obligations under the rental agreement).
- Where there is more than one tenant subject to a rental agreement, unless otherwise agreed to in writing by each of the tenants, disposition of the security deposit shall be made with one check being payable to all such tenants and sent to a forwarding address provided by one of the tenants. The landlord shall make the security deposit disposition within the 45-day time period, but if no forwarding address is provided to the landlord, the landlord may continue to hold such security deposit in escrow.
- The landlord shall notify the tenant in writing of any deductions made from the tenant’s security deposit during the course of the tenancy. Such notification shall be made within 30 days of the date of the determination of the deduction and shall itemize the reasons.
- The landlord shall maintain and itemize records for each tenant of all deductions from security deposits during the preceding two years, and permit a tenant or his authorized agent or attorney to inspect such tenant’s records of deductions at any time during normal business hours.
- Upon request by the landlord to a tenant to vacate, or within 5 days after receipt of notice by the landlord of the tenant’s intent to vacate, the landlord shall provide written notice to the tenant of the tenant’s right to be present at the landlord’s inspection of the dwelling unit for the purpose of determining the amount of security deposit to be returned.
- Failure to provide notices and to return security deposit as required by statute may result in the landlord being ordered to return the security deposit, together with actual damages and reasonable attorney’s fees.