Last Updated May 14, 2019

Law and Practice

Contributed By McGuireWoods LLP

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McGuireWoods LLP has a diverse real estate practice of more than 80 lawyers and land use planners in its offices in Tysons, Charlottesville, Richmond and Norfolk, with skills in a wide range of traditional and non-traditional real estate transactions. The firm’s transactional representation spans all aspects of real estate acquisition, development, financing and disposition, including acquisition, sale, leasing and financing transactions, as well as project finance, construction, public-private partnerships, negotiation of local and state incentives and privatization transactions. The team respresents clients around the world on various sides of such transactions, including Fortune 500 companies. The transactional practice is complemented by the firm’s land use expertise, as it frequently handles zoning and land use matters for development projects.

Single purpose entity (“SPE”) limited liability companies are a very prevalent ownership structure used in Northern Virginia to buy and sell real estate. Limited liability companies are prevalent because they combine the limited personal liability feature of a corporation with the tax advantages of partnerships. SPEs (or single asset entities) are prevalent because lenders often require these to insulate their collateral from the claims of other creditors.

In Virginia, all forms of property (eg, residential, industrial, offices, retail, hotels) use the same form of deed of conveyance. Section 55-48 of the Virginia Code sets forth the general requirements for a deed of conveyance. At common law, deeds in Virginia required a wax-imprinted seal or scroll. Section 11-3 of the Virginia Code, however, sets forth acceptable substitutes, which include: (i) a “scroll by way of seal”, (ii) an imprint/stamp of a corporate or official seal, (iii) the use in the body of the document of the words “this deed” or “this indenture” or other words recognizing a seal, and (iv) the notarization of the document.        

There are four types of deeds used to convey property in Northern Virginia: a special warranty deed, a general warranty deed, a deed with “English Covenants of Title”, and a quitclaim deed. In a special warranty deed, the grantor warrants that neither the grantor nor anyone claiming by, through or under the grantor has done anything to defeat or diminish the grantee’s rights in the property. In a general warranty deed, the grantor generally warrants the title conveyed and promises to defend the title against the claims and demands of all persons, back to the beginning of time. If a deed contains “English Covenants of Title”, then the promises and representations set forth in Section 55-71 through 55-74 of the Virginia Code are incorporated into the deed. Lastly, in a quitclaim deed, the grantor makes no warranty or covenant of title, and merely conveys such title as the grantor has, if any. All such deeds are recorded in the land records of the county in which the property is located.

Due diligence for real estate acquisitions in Northern Virginia typically includes the following, at a minimum:

    1. Title and Survey Review. Review title commitment, survey and B-2 exceptions, and obtain pro-forma and endorsements. Obtain estoppel certificates from declarants or associations under recorded CC&Rs, and from tenants under leases, as applicable.
    2. Zoning and Proffers. Review zoning to confirm ability to develop and/or use property for its intended purpose. Secure zoning confirmation letter. Review and allocate any density rights among landowners controlled by a common rezoning. Review proffers to identify any on-site and off-site obligations encumbering property.
    3. Easements. Confirm on-site and off-site easements for access, utilities, storm water drainage, signage, parking, temporary construction and grading.
    4. Utilities. Confirm existing or contemplated utilities have adequate capacity to support intended use.
    5. Environmental. Perform Phase I and potentially a Phase II.
    6. Geotechnical Work. Perform soil studies.

Items a) to c) above are typically handled by the buyer’s counsel at the buyer’s expense, while items d) to f) are typically handled by the buyer’s engineers at the buyer’s expense.

The representations and warranties provided in a purchase and sale agreement vary widely, depending on the agreement.  Typical representations and warranties include the following:

  • Authority: that each party is duly authorized to execute the agreement and to take all action contemplated by the agreement.
  • No violation: that the execution of the agreement and the consummation of the transaction will not result in a breach of any other agreement or violate applicable law.
  • No litigation: that there are no actions, suits or proceedings (including any condemnation proceedings) pending or threatened against the property.
  • No bankruptcy: that the seller has not filed for protection or relief under any applicable bankruptcy or creditor protection laws.
  • No hazardous waste: that no portion of the property has been used to generate, manufacture, treat, store, handle or dispose of hazardous waste.
  • Possession: that there are no parties in possession of the property other than the seller.
  • Taxes: that certain taxes (eg, rollback taxes) will not become due and payable as a result of the transaction.

The buyer’s remedies for a breach vary widely, depending upon what is negotiated in the purchase and sale agreement. In some agreements, it is merely a condition to closing that the representations and warranties be true and correct; in these agreements, the buyer may only recover its deposit and its third party out-of-pocket expenses. In other agreements, the seller may include a provision that prohibits the buyer from suing for any damages for a breach unless and until the aggregate amount of such damages exceeds a certain minimum threshold, whereupon the seller shall be liable for all damages up to a capped amount. In any event, recovery is usually limited to actual damages incurred, excluding consequential, exemplary, or punitive damages. 

Recent years have seen considerable foreign investment in the region’s real estate economy. Such investment decisions involve a variety of practical tax and regulatory concerns that are most appropriately addressed on a case-by-case basis.

The Virginia Waste Management Act and the State Water Control Law are the state laws that govern oil and solid and hazardous waste liability issues in Virginia. The statutory language provides, as a general matter, liability for a person who caused or permitted contamination to occur, or for a person who is the owner or operator of a petroleum underground storage tank. This language can be used by the Virginia Department of Environmental Quality to hold an otherwise innocent purchase liable for pre-existing contamination, but the statutes provide defenses for bona fide prospective purchasers and innocent landowners who meet certain standards, which are similar to EPA’s “all appropriate inquiry” standard under CERCLA. Thus, before acquiring contaminated property in Virginia, it is advisable to obtain concurrence from DEQ that a purchaser will be considered a bona fide prospective purchaser.

The allocation of environmental liabilities among purchasers and sellers is a matter of negotiation, so it is hard to state what is a “typical” allocation, other than to say that the most common split is for a seller to retain liability for pre-existing liabilities and for a buyer to be responsible for post-closing environmental liabilities that did not arise before the closing.

Most purchase and sale agreements have a provision wherein the seller represents and warrants that they have not used any portion of the property to store, handle or dispose of hazardous waste. This representation and warranty is usually limited (i) so it does not extend to the period before the seller acquired the property, and (ii) to the seller’s actual knowledge, which is typically defined as the actual knowledge of a specified individual without the duty to investigate or review the due diligence provided. Aside from this express representation and warranty, a buyer typically acquires the property in its “AS-IS, WHERE IS, CONDITION.”

The Code of Virginia provides localities with the ability to classify and determine the use and other characteristics of territory in its jurisdiction. A prospective buyer generally ascertains the uses permitted for a parcel of real estate by reviewing the jurisdiction’s zoning map, and consulting the related provisions of the locality’s zoning ordinance and comprehensive plan. The zoning ordinance will typically provide a range of uses, with qualifications where applicable, which may be permitted on the parcel either by right, or through one or more legislative approval processes. An owner seeking uses not typically permitted under the applicable zoning may seek a rezoning of the parcel, which typically requires the owner to agree to appropriate development conditions or proffers, all dependent on and related to the development proposal.

Local governments enjoy the ability to potentially condemn property for public purpose; this authority is derived from Va. Code §15.2-1901. Prior to any condemnation, the locality must hold a public hearing and adopt a resolution or ordinance approving the proposed public use in directing the acquisition of the property. There are also jurisdictional procedures and prerequisites to filing a condemnation action (ie, notice, appraisals, offers and negotiations) under the applicable law: the property condemned must be for a “public use”, which requires the property to be within the control of the condemning authority. Said differently, there must be a right by the public or some public agency to use the property as a matter of right as opposed to a favor or a license. A taking is generally not for public use “if the primary use is for private gain, private benefit, private enterprise, increasing jobs, increasing tax revenue or economic development.” However, the fact that the property may also incidentally benefit some private individuals does not destroy the public use. Ultimately, the public interest must dominate any private gain. The condemnor has the burden of proving public use but courts generally do not inquire into the locality’s good faith in initiating condemnation proceedings if the locality’s purpose is clearly stated in the resolution or ordinance. 

The Grantor Tax (Section 58.1-802 of the Virginia Code) is a tax imposed on each deed by which realty is conveyed. The amount of this tax is 50 cents for each $500 or fraction        thereof of consideration (exclusive of assumed debt). Section 58.1-811C of the Virginia Code lists certain exemptions. This tax is typically paid by the seller.

The Regional WMTA Capital Fee (Section 58.1-802.3 of the Virginia Code) is a tax imposed on each deed by which realty located in any county or city that is a member of the Northern Virginia Transportation Authority is conveyed. The amount of this tax is 15 cents for each $100 or fraction thereof of consideration (exclusive of assumed debt). The same exemptions that apply to the Grantor Tax apply to this tax. This tax is typically paid by the seller.

The State Recordation Tax (a/k/a “Grantee Tax”) (Section 58.1-801 of the Virginia Code) is imposed on every deed admitted to record, except those that are exempt by law. The amount of this tax is 25 cents for every $100 or fraction thereof of the consideration of the deed or the actual value of the property conveyed, whichever is greater. Section 58.1-811A of the Virginia Code lists certain exemptions. This tax is typically paid by the buyer.

The Local Recordation Tax (Section 58.1-814 of the Virginia Code) is a tax that localities are authorized to collect in addition to State Recordation Tax. This tax is equal to one-third of the amount of state recordation tax, and is typically paid by the buyer.

Recent years have seen considerable foreign investment in the region’s real estate economy. Such investment decisions involve a variety of practical tax and regulatory concerns that are most appropriately addressed on a case-by-case basis.

McGuireWoods LLP

1750 Tysons Boulevard
Suite 1800
Tysons, VA 22102-4215

+1 703 712 5000

+1 703 712 5050

info@mcguirewoods.com www.mcguirewoods.com
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Authors



McGuireWoods LLP has a diverse real estate practice of more than 80 lawyers and land use planners in its offices in Tysons, Charlottesville, Richmond and Norfolk, with skills in a wide range of traditional and non-traditional real estate transactions. The firm’s transactional representation spans all aspects of real estate acquisition, development, financing and disposition, including acquisition, sale, leasing and financing transactions, as well as project finance, construction, public-private partnerships, negotiation of local and state incentives and privatization transactions. The team respresents clients around the world on various sides of such transactions, including Fortune 500 companies. The transactional practice is complemented by the firm’s land use expertise, as it frequently handles zoning and land use matters for development projects.

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