Virginia Commercial Lease Agreement

A Comprehensive Analysis of Virginia Commercial Lease Law

Methodology: General Forms Generator Workflow v3.0

I. Introduction

What Is a Virginia Commercial Lease Agreement?

A Virginia commercial lease agreement is a legally binding contract between a landlord and tenant for the rental of commercial property, such as retail, office, or industrial space. The agreement establishes all terms and conditions of the arrangement, including rent price, lease term, security deposit, operating expenses, and the option to renew. ^[1]

Virginia-Specific Legal Context

Types of Commercial Leases

Expense Structure Options

Commercial leases are typically categorized by how operating expenses are allocated between landlord and tenant. The three primary structures are:

Triple Net (NNN) Lease: The tenant pays base rent PLUS all operating expenses, including property taxes, insurance, and common area maintenance (CAM). This is the most landlord-favorable structure and is common for single-tenant buildings or tenants with long-term leases.

Gross Lease: The landlord pays all operating expenses, and the tenant pays a single flat rent amount. This provides cost predictability for tenants but may result in higher base rent to offset landlord expenses.

Modified Gross Lease: A hybrid arrangement where landlord and tenant share operating expenses according to negotiated terms. Common in multi-tenant office buildings where base rent includes some expenses while others (often increases above a base year) pass through to tenants.

Operating expenses typically include: property taxes, insurance, common area maintenance (CAM), landscape maintenance, HVAC maintenance, utilities, and management fees.

Required Disclosures

Energy Submetering Disclosure

Energy submetering equipment, energy allocation equipment, water and sewer submetering equipment, or a ratio utility billing system may only be used if clearly stated in the rental agreement or lease. ^[3]

Equipment Standards: All energy submetering equipment and energy allocation equipment must meet the requirements and standards established by the Virginia State Corporation Commission. ^[3]

Tenant Testing Rights: Upon request, the landlord must test energy allocation equipment without charge. However, this free testing cannot be requested more frequently than once every 24 months for the same tenant. The tenant or their representative may be present during testing, and a written report must be provided within 10 working days. ^[3]

Late Fees: Landlords may charge up to $5 as a late fee if submetered utility payment is not made within 15 days of billing. ^[3]

Brokerage Relationship Disclosure

When a licensed real estate agent is involved in a commercial lease transaction, Virginia law requires specific disclosures. If a licensee has a brokerage relationship with any party to the transaction, they must disclose this in writing. ^[4]

For Lease Transactions: The disclosure must be in writing and included in the application for lease or the lease itself, whichever occurs first. If the lease terms do not provide for such disclosure, it must be made in writing not later than signing of the lease. ^[4]

Termination Notice Requirements

Year-To-Year Tenancy

A year-to-year tenancy in a nonresidential rental property may be terminated by either party giving three months' notice in writing, prior to the end of any year of the tenancy. ^[5]

Month-To-Month Tenancy

A month-to-month tenancy may be terminated by either party giving 30 days' notice in writing, prior to the next rent due date, unless the rental agreement provides for a different notice period. ^[5]

Building Use Changes (120-Day Notice)

For multifamily residential buildings with four or more units being converted to commercial use, the landlord must provide 120 days' prior written notice. Changes in use include: conversion to hotel/motel, planned unit development, substantial rehabilitation, demolition, or sale to a purchaser requiring an empty building. ^[5]

Default and Eviction Procedures

5-Day Default Notice

If a commercial tenant is in default of rent payment and continues in default for five days after receiving written notice requiring payment or possession, the tenant forfeits their right to possession. At that point, the landlord may proceed to recover possession. ^[6]

Self-Help Eviction (virginia Allows for Commercial)

Unlawful Detainer (court Eviction)

Landlords may also terminate commercial tenancies through formal legal process: filing an unlawful detainer action, obtaining an order of possession, and executing eviction through the sheriff. This is often preferred for documentation purposes and to avoid potential breach of peace issues. ^[2]

Tenant Property After Eviction

After an unlawful detainer eviction, the sheriff places the tenant's personal property in the public way. The tenant has 24 hours to remove their property. After 24 hours, the landlord may remove or dispose of remaining property. If property is sold, proceeds are applied to amounts owed to the landlord (including eviction costs), with any remainder treated as a security deposit. ^[7]

Abandonment Procedures

If a tenant from whom rent is owed abandons the commercial property and leaves it unoccupied, and if the tenant's personal property is insufficient to satisfy the rent owed, the landlord may post a written notice on a conspicuous part of the premises requiring payment. ^[8]

Monthly Tenants: 10 days to pay after notice is posted. ^[8]

Yearly Tenants: One month to pay after notice is posted. ^[8]

If rent is not paid within the specified time, the landlord is entitled to possession and may enter the premises. The tenant's right to possession terminates, but the landlord may still recover rent owed up to termination.

Security Deposits

No Statutory Limits

Unlike residential leases (governed by the VRLTA), commercial leases in Virginia have no statutory limits on security deposit amounts, no required timeframes for return, and no mandatory penalties for wrongful withholding. All security deposit terms are subject to negotiation and should be clearly specified in the lease.

Transfer Upon Property Sale

When commercial property is sold, the current owner must transfer any security deposits and accrued interest to the new owner at the time of transfer. If a property management company holds the deposits, the owner must give written notice to the manager requesting transfer of deposits to the current owner prior to settlement with the new owner. ^[9]

Tenant Rights

Security System Installation

Virginia law provides that no landlord of premises used for nonresidential purposes shall unreasonably withhold or delay consent for the tenant to install security systems within the premises. ^[10]

Rent Abatement for Destruction

If commercial buildings are destroyed by fire or other casualty (without fault or negligence of the tenant), the tenant is not bound to continue paying rent or to rebuild unless the lease specifically requires it. A reasonable reduction in rent applies for the period until replacement buildings of equivalent value are available. ^[11]

Utility Records Access

Tenants have the right to inspect and copy records regarding energy submetering, water and sewer submetering, or ratio utility billing during reasonable business hours. The landlord may charge a reasonable copying fee reflecting actual costs. ^[3]

Holdover Tenants

A commercial tenant who fails to vacate at lease expiration is not automatically held as a tenant for another term if the failure is not due to willfulness, negligence, or other avoidable cause. However, the holdover tenant remains liable for: ^[12]

1. Use and occupation of the premises during the holdover period2. Any loss or damage sustained by the landlord because of the failure to surrender possession on time

Many commercial leases include specific holdover provisions (often double or triple rent) which will be enforced as written.

Nonresident Property Owners

Nonresident property owners (individuals or groups not residing in Virginia) must appoint and continuously maintain an agent who meets one of the following criteria: ^[13]

• If an individual: must be a Virginia resident- If an entity (corporation, LLC, partnership): must be authorized to transact business in Virginia- Must maintain a business office within Virginia

Requirements: Every lease must designate the agent and their office address. The agent information must be filed with the circuit court clerk ($10 fee). A nonresident property owner cannot maintain court action concerning the property until the designation is filed. ^[13]

Key Lease Provisions to Include

Because Virginia commercial leases are primarily governed by contract terms, comprehensive drafting is essential. Key provisions should address:

Rent and Payment Terms: Base rent amount, payment due date, acceptable payment methods, late fees, and any rent escalation clauses.

Operating Expenses: Clear definition of which expenses are included, CAM calculation methodology, and annual reconciliation procedures.

Lease Term: Commencement date, expiration date, renewal options, and termination rights.

Security Deposit: Amount, permitted uses, return conditions, and timeline.

Use Clause: Permitted uses of the premises, restrictions, and exclusive use rights (if any).

Maintenance and Repairs: Allocation of responsibility for repairs, maintenance, and capital improvements.

Insurance Requirements: Types of coverage required (liability, property, business interruption), minimum limits, and additional insured requirements.

Default and Remedies: Definition of default, cure periods, landlord remedies (including self-help), and tenant remedies.

Assignment and Subletting: Conditions for assignment or subletting, landlord consent requirements, and recapture rights.

Holdover Provisions: Rent rate during holdover (often 150-200% of base rent), and landlord remedies.