How to Terminate a Month-to-Month Tenancy in Virginia

As the name implies, a month-to-month tenancy is an arrangement where the tenant is permitted to occupy the leased premises on a continuing monthly basis until the lease is terminated.  This occupancy arrangement can be created by a written lease.  It can also be created by operation of law when no written lease exists, or when a written lease exists but does not define a term or define what happens at the end of the term (in which case, a month-to-month tenancy is created going forward).  

Usually, a written lease that explicitly creates a month-to-month tenancy will specify that the landlord/tenant must provide the other party ____ days advance written notice to terminate the tenancy.  However, if the lease does not specify how the month-to-month tenancy is to be terminated, or if there is no written lease, then the Virginia Code will control the termination of the tenancy.  

The Virginia Code provides that the landlord or the tenant may terminate a month-to-month tenancy by serving a written notice on the other at least 30 days prior to the next rent due date (see Virginia Code § 55-222 and § 55-248.37).  Therefore, contrary to popular belief, a month-to-month tenancy does not always terminate 30 days after the date on which the landlord provides written notice of termination to the tenant. If rent is due on the first day of the month (as is the case for most tenancies), then the tenancy will always terminate at the end of a calendar month (not 30 days from the date of the notice).  

To illustrate: If there is no written provision to the contrary and a 30 day notice is served on June 5, then the month-to-month tenancy will not terminate until the end of July.  This is due to the fact that 30 days after June 5 is July 5, and the next rent installment due after July 5 is due on August 1. However, if the 30 day notice is provided on May 31, then the tenancy will terminate at the end of June since 30 days after May 31 is June 30 and there is a rent installment due on July 1.  As this example shows, if a landlord wants the tenancy to end at the end of a particular month, then the landlord must provide the 30 day notice in the month before that month.  And, if the landlord wants a tenancy to end at the end of February, the landlord must provide the notice by January 29 (or January 30 in a leap year). The exception is if the final lease month has 31 days and the notice is provided on the first day of the month.   

Things get more interesting when rent is due on a day other than the first day of the month.  For instance, if rent is due on the 5th day of the month, and a notice to terminate the tenancy is provided more than 30 days before the 5th, but less than 30 days before the 1st, when does the month-to-month tenancy terminate?  This question is open to interpretation under the Virginia Code.  Most likely, the tenancy terminates 30 days after the notice is provided.  However, this interpretation conflicts with the generally accepted concept of a month-to-month tenancy, since the tenancy does not terminate at the end of a calendar month.  In our experience, some Virginia judges will adhere to the generally accepted concept of a month-to-month tenancy, and rule that unless a notice is provided at least 30 days before the last day of a calendar month, the lease will not terminate until the end of the following calendar month. In other words, judicial interpretation might find that the tenancy cannot end mid-month.

In those cases where the lease defines the month-to-month tenancy and specifies the notice period for terminating the tenancy, the lease will control. 

If you are the landlord and want to end a month-to-month tenancy, you should provide the termination notice before the end of the prior month to avoid a complex calculation and possible extension of an unwanted tenancy.

    

Gross & Romanick, P.C. Obtains Large Judgment

On May 9, 2014, Gross & Romanick, P.C. secured a judgment in excess of $65,000 for a commercial landlord client in the Fairfax County General District Court, which judgment included an award of possession against the tenant and a subtenant. 

The Original Lease

It is very important for a commercial landlord in Virginia to retain an original, signed copy of every lease within its portfolio.  By “original”, we mean a copy of the lease containing the tenant’s “wet ink” signature.  If a landlord tries to enforce a non-original copy of the lease in Court, the landlord may have trouble admitting the lease into evidence.  The reason is that Virginia Courts follow the “best evidence rule” and require the production of original documents when available.  There are exceptions to this rule (for example, if the lease is lost, destroyed or cannot be retrieved without great inconvenience), but if the tenant objects to the authenticity of the photocopy and denies that it is a true and accurate copy of the original, the landlord could run into problems. Furthermore, many Judges in Virginia will not award attorney fees to the landlord in the absence of an original lease, even if the photocopy is admitted into evidence.

 

Application of Security Deposit

Most every commercial lease has (or should have!) provisions regarding the management and application of the tenant’s security deposit.  Since the Virginia Code does not specifically address security deposits for commercial leases, the applicable lease provisions will control in the event of any dispute between the landlord and the tenant.  Ideally, the lease should: specify the amount of the security deposit; permit the landlord to make deductions from the security deposit in the event the tenant fails to pay rent, damages the property or otherwise violates the lease; require the tenant to restore the full balance of the security deposit in the event deductions are made by the landlord during the term of the lease; permit the landlord to transfer the security deposit to a successor landlord; and set forth a time table pursuant to which any remaining balance of the security deposit will be refunded following the termination of the lease.  It is quite common for landlords and tenants to dispute the application of the security deposit at the end of the lease term.  A well-written lease will give the landlord substantial power to make deductions from the security deposit to repair damage to the property and to compensate the landlord for any other losses incurred as a result of the tenant’s actions or defaults.  It will also shift the legal burden to the tenant to contest the landlord’s deductions.  Of course, landlords should endeavor to be reasonable with respect to deductions and should meticulously account for any deductions by documentation of charges and communicating clearly with the tenant.

Foreclosure of Commercial Property: Understanding Subordination, Non-Disturbance And Attornment (“SNDA”) Agreements

When a commercial property owner defaults on its mortgage, the lender will foreclose on the mortgage and sell the property to a third party through a judicial or non-judicial sale (referred to herein as a “foreclosure sale”).  In Virginia, an “automatic foreclosure” state, a foreclosure sale automatically terminates any interests in the property which are subordinate to the mortgage which is the subject of the foreclosure, including all leases executed by the former owner and its tenants.   Accordingly, following the foreclosure sale, the existing tenants have no contractual right to occupy the property, and the purchaser has no right to enforce the prior owner’s leases. 

The execution of Subordination, Non-Disturbance and Attornment (“SNDA”) Agreements can eliminate some of the uncertainty that comes with foreclosure sale.  The SNDA Agreement is a tri-party agreement between the tenant, the landlord and the landlord’s lender.  At its core, it creates an agreement among the parties that allows the tenant to continue to occupy the property following a foreclosure sale, with the lender or the new owner of the property becoming the landlord.  As its name implies, the SNDA Agreement has three main provisions:  Subordination, Non-Disturbance and Attornment. 

Subordination has to do with the priority of interests in the property.  In almost all cases, the landlord’s lender will require that its secured interest in the property (created by the landlord’s mortgage or deed of trust) be superior to any other person’s interest in the property.  Thus, in the event the landlord defaults on the mortgage, the lender can freely dispose of the property without the consent of any other parties.  Most commercial leases explicitly provide that the lease is subordinate to any existing or future mortgages entered into by the landlord.  The subordination section of the SNDA Agreement is a way for the lender to obtain additional assurance that the lease is subordinate to the mortgage.  In very rare circumstances, a lender will subordinate its property interest to that of a tenant.  This is uncommon, and usually only obtainable by large, national-chain tenants.  

Non-Disturbance has to do with the tenant’s ability to continue occupancy of the property following a foreclosure by the lender, notwithstanding the tenant’s property interest being subordinate to that of the lender.  The non-disturbance section of the SNDA Agreement typically provides that the lender will not disturb the tenant’s right to possess the property if the lender assumes ownership of the property or sells it to a third party through a foreclosure sale.  However, most SNDA Agreements limit the lender’s obligations to the tenant, and do not require the lender to assume all of the landlord’s obligations under the lease. 

Attornment has to do with the tenant’s rental obligations to the lender (if it assumes ownership) or the new owner of the property following the foreclosure sale.  If the tenant is required to “attorn” to the new owner following the foreclosure, the tenant must recognize the new owner as its landlord and pay rent to said party in accordance with the terms of the existing lease.  The attornment portion of the SNDA Agreement is a way for the lender to ensure that a lease will remain in effect following the foreclosure sale. 

SNDA Agreements can protect both the lender and the tenant by eliminating the uncertainty that comes with a foreclosure sale.  The commercial landlord has little to lose or gain by signing the SNDA Agreement since it will only be applicable if the landlord defaults on its mortgage.  Accordingly, the landlord should be open to facilitate the execution of SNDA Agreements as a way to appease lenders and tenants. 

Getting Your Money After You Win In Court

You won your court case and the judge signed an Order stating that the tenant owes you quite a bit of money. Break out that expensive champagne and celebrate victory, because the tenant, now known as the “judgment debtor”, is picking up the tab for the festivities. NOT SO FAST!!!

Since the abolition of debtor’s prison in 1833, most court orders commanding the payment of money, also known as “money judgments”, are not enforced through the coercive power of the court’s contempt authority. Rather, money judgments are enforced by the plaintiff, now called the “judgment creditor”. The judgment creditor may utilize court processes to collect the judgment, but the court will not on its own initiative collect a judgment for the judgment creditor.

Complicating the situation is that there is no federal law governing the collection of judgments, nor is there a unified database of judgments and collection information. It is therefore no surprise that a May, 2001 article by Arlene Hirsch of the Wall Street Journal’s Startup Journal reported that approximately 80% of money judgments in the United States go uncollected. Collection law constitutes a vast field of legal doctrines arranged in an amalgamation of (sometimes conflicting) state law about which most lawyers know very little. Making matters worse is that most collection proceedings are considered to be in “derogation of the common law”, meaning that the procedural requirements must be strictly adhered to or the proceeding is deemed to be a legal nullity. This concept, in and of itself, is an interesting proposition as the common law method of collecting a debt was to have the judgment debtor sent off to debtor’s prison.

By way of introduction to the topic of legal collections, there are typically four (4) major categories of collection procedures to obtain satisfaction of a judgment: garnishment, debtor interrogatories, actual levy and liens. The purpose of this post is to provide a very general overview of each method. Of course, each method has its own unique benefits and risks, so this post is not meant to constitute legal advice. If you have questions regarding your rights, you should contact an experienced collection attorney.

The lien is probably the easiest collection method to understand, but it is often the least effective and slowest to recover money. Nearly every jurisdiction in the United States has a statute that either by operation of law or through some relatively simple procedures transforms a money judgment into a lien against the real or personal property of the judgment debtor. A creditor can utilize these statutes to collect a judgment from real estate by the following: find real property of the judgment debtor, docket the judgment in the jurisdiction where the property is located and wait until the debtor attempts to sell or refinance the property. Most states require judgment liens to be satisfied out of the proceeds of a sale of real property and the judgment debtor is generally not able to refinance without paying off judgment liens. On the other hand the judgment creditor can be more aggressive and execute on the judgment by selling the real property, but each jurisdiction has procedures that govern how to execute on the judgment against real estate. Liens on personal property work in much the same way, but are not usually as effective as liens on real estate because of the easy transferability of personal property.

The actual levy, in contrast to the lien, is probably the most difficult collection method to successfully pursue. That said, it is sometimes the best (and only) way to recover money. The actual levy is the means used by a judgment creditor to seize the tangible assets of the judgment debtor, including cash. In most states the actual levy is performed by the sheriff, marshal or court security officer at the request of the judgment creditor; the seizure involves the sheriff taking items of personal property belonging to the judgment debtor and selling them in a commercially reasonable manner. Many judgment creditors, after years of squabbling and litigating against a judgment debtor take particular satisfaction in having the sheriff take the judgment debtor’s car, farm equipment or jewelry. In some circumstances, this is a very effective method of satisfying a judgment, particularly if the judgment debtor owns valuable jewelry or shares of stock. Many states, however, require the judgment creditor to post a bond with the sheriff before the sheriff will engage in a levy. The items seized at levy may also be insufficient to satisfy the judgment after sale. Moreover, the procedural requirements for a seizure can be considerable. In many cases, the judgment debtor retains a bit of a trump card over the actual levy through the use of statutory exemptions or bankruptcy. However, if the judgment debtor’s only assets are stock or other tangible personal property or if the judgment debtor maintains a considerable inventory, the actual levy may be the best way to go. Seizure of the cash from a retail establishment, known as a “till tap”, can realize results, and make a statement to the judgment debtor.

Similar to the actual levy, but designed to reach intangible personal property is the garnishment action. Different states have different names for this procedure, but every state has a similar procedure that allows the judgment creditor to intercept assets payable to the judgment debtor by third parties. Customarily this is utilized to seize bank accounts or to intercept wages, but can also be used to intercept rental receipts, contract payments, proceeds from the sale of a business and any other item of intangible personal property. This collection method, like the actual levy, is subject to various statutory exemptions. However, in most states, the garnishment procedure is far more straightforward than the procedure for an actual levy. Moreover, a bond is usually unnecessary.

Debtor Interrogatories are used to determine the location of the assets of the judgment debtor. Some states have statutes authorizing the use of independent debtor interrogatory proceedings where the judgment debtor is put under oath by a judge and required to answer questions about the debtor’s assets, income, expenses and financial situation. If those questions reveal assets, then, in some circumstances, the judge is empowered to order turnover of those assets to the judgment creditor under the pains and penalties of contempt. Other states simply allow the judgment creditor to conduct a deposition of the judgment debtor, but the judgment debtor must determine how to seize such assets. The power of the debtor interrogatories depends in large part upon what is authorized by state statute. In addition to questioning the judgment debtor, the judgment creditor can require the judgment debtor provide financial records, such as bank account and brokerage statements.

Settling the Back Rent

Landlords and their property managers should be cautious in their communications with tenants that are in default for non-payment of rent.  While it may be prudent to work out a payment plan that is acceptable to the landlord, the landlord must be careful to avoid creating a new agreement with the tenant that might supersede the payment terms in the lease.  This is especially true if the landlord is going to forgive or delay a portion of the back rent as part of the new agreement. The landlord should expressly reserve, in writing, all of its rights under the lease should the tenant default on the new payment plan, including the right to commence a legal action to recover all of the back rent that is owed under the lease.  The landlord’s failure to do so can result in enforcement problems should the tenant fail to honor the payment plan.