Virginia Commercial Landlord/Tenant Law - An Introduction

As always, before reading this post please review my disclaimer by following the link above or by clicking on this link.  As always, any legal principles discussed apply only to the Commonwealth of Virginia.

Introduction

It's no secret that I talk about landlord/tenant law on this blog a lot.  Despite landlord/tenant work being only about 30% of my practice (Family Law is about 50%, and a combination of other practice areas make up the other 20%), most of the time where I am faced with a problem caused by someone acting outside the law, it's a landlord/tenant case.  For this reason, I have not only focused on landlord/tenant law, but specifically residential landlord/tenant law - the law covering landlord/tenant relationships where the tenant lives in the leased property.  But there is a whole other field of landlord/tenant law that I work in which is also important for many people, especially small business owners, to understand - commercial landlord/tenant law.

Commercial landlord/tenant law is the law covering landlord/tenant relationships where the tenant is primarily renting the property in order to run a business out of the property.  Most businesses, especially small businesses, do not own the building or store that they operate out of, rather most rent, and commercial landlord/tenant law governs their transactions.  Commercial landlord/tenant law is, in many ways, radically different than residential landlord/tenant law, so I cannot hope to cover it all in one blog post.  Instead, today I hope to give you a brief introduction to commercial landlord/tenant law.

VRLTA vs. Title 55, Chapter 13 vs. Something else?

I have talked over and over again about how important it is to know what law governs your lease - the Virginia Residential Landlord and Tenant Act ("VRLTA") or Title 55, Chapter 13 of the Code of Virginia.  Well, for commercial leases, the answer is "neither."  Virginia Code Section 55-248.5(A)(7) explicitly excludes commercial leases from coverage under the VRLTA.  Meanwhile, while there are parts of Title 55, Chapter 13 that impose some restrictions on commercial landlord/tenant relationships, pretty much all of the important ones (5 day pay or quit notices, 21/30 notice rights, rights against self-help, etc.) are explicitly limited to residential leases.

As a result, commercial leases are almost exclusively governed by common law principles and contract law.  With rare exception, what it says in a lease goes, especially since even those Code provisions that do cover commercial leases do not have non-waiver clauses.

"Default Rules"

So, let's talk for a minute about the default rules for the common law.  In this example, you have a commercial lease that just says "Landlord leases property to tenant for tenant's business at a rate of $x per month for 12 months."  I've never seen a commercial lease like that, but it's a good starting point, because if you have a lease like that, the "default rules" apply.  The default rules are what the common law says should happen, but can be changed by provisions of the lease itself.  Here are what I consider the most important "default rules" in commercial leases:

• If the tenant breaches the lease in any way (non-payment of rent or otherwise), the landlord has the right to immediately terminate the lease without advanced notice or giving the tenant an opportunity to fix the breach.
• A landlord may self-help - he may come in, change the locks, remove all of the tenant's property, and retake possession of the property, all without going to court.
• If the landlord breaches the lease, the tenant may file a suit for rescission to have the lease terminated.  There is no such thing as a Tenant's Assertion for commercial leases.
• The tenant may not self-help by refusing to pay rent.  The tenant may self-help by fixing the problem himself and then demanding reimbursement from the landlord.
• If the landlord sues for non-payment of rent, the tenant may raise as a defense "constructive eviction," meaning flaws with the property were so serious the tenant could not continue to use the property.  Constructive eviction can negate any unpaid rent due, but it does not give the tenant a right to return to the property.
• If the landlord sues for non-payment of rent, the tenant may raise as a defense "recoupment," meaning the flaws with the property were so serious that they diminished the value of the property to the tenant and so the tenant should not have had to pay rent in full.  Recoupment can negate some or all unpaid rent, but it does not give the tenant a right to return to the property.
• Even though a landlord has the right to self-help, the landlord may still file an Unlawful Detainer in the General District Court and get a court order for possession enforced by the sheriff.  Doing this protects the landlord from potential liability for an unlawful eviction (if it later turns out the tenant was not in breach and the landlord self-helped, the landlord can get in a whole heap of trouble), and also protects the landlord from potential liability for any damage done to the tenant's personal property in the course of the eviction.
• Unlawful detainers for commercial leases are exempt from the General District Court's jurisdictional maximum of $25,000 (so, an unlawful detainer in a residential lease where more than $25,000 is owed must be filed with the Circuit Court, but a commercial lease can be filed in the General District Court no matter how much is due).

Now, you will notice that a lot of that is dramatically different from residential landlord/tenant law.  Notices are mandatory in residential law, self-help of all forms, both by landlords and tenants, is banned, and "constructive eviction" and "recoupment," while technically still available, have both been overcome by the availability of much more effective offensive - rather than defensive - tools (21/30 notices, tenant's assertions, etc.).  Similarly, rescission would also still be available but is rendered completely moot in residential law by the availability of 21/30 notices.

Typical Changes

Because the common law is so weak (I mean this in the sense that it can almost entirely be waived by contract), most commercial leases are actually very long, as businesses typically have their own way they want leases to be governed.  Moreover, the power balance between landlords and tenants is much less tilted towards landlords in commercial law than residential law, so tenants are much more likely to actively negotiate their leases.

The result of this is that many of the above common law defaults do not actually apply to commercial leases.  Most leases I have dealt with, for example, have notice provisions.  This actually makes sense even from a landlord's perspective, because an eviction is typically much more expensive than just having your tenant correct the problem.  Additionally, while few outright ban self-help, many provide incentives for not using self-help (for example, attorney's fees only being available if you go to court instead of self-helping).

The end result is that if you are analyzing a commercial landlord/tenant situation, you need to not only understand the law, but also deeply understand the lease.  In residential leases, you can ignore whole provisions since you know the law governs and cannot be waived in some instances.  You do not get that luxury with commercial leases.

Conclusion

As you can see from the above, commercial leases are really a whole separate area of landlord/tenant law than residential leases.  Very few statutes apply to them, almost everything is waivable, and there are complex common law rules that date back centuries that apply.  If you are considering drafting or signing a commercial lease, or are involved in a commercial landlord/tenant dispute and would like legal assistance, please feel free to call (703)281-0134 or e-mail me at SLeven@thebaldwinlawfirm.com to set up a consultation.  Our initial consultations are free for up to half an hour!