2017 Legislative Update: New Laws Impacting Commercial Real Estate Clients

On July 1, 2017, new laws passed during the 2017 General Assembly session will go into effect in Virginia that may impact you as someone interested in commercial real estate. They run the gamut of issues touching on the real estate industry, including new eminent domain procedures and tax updates, as well as notable changes to residential landlord-tenant law and the much-discussed issue of short term rentals.

Of course, these are just some of the more than 3,000 bills proposed during this year's session. As a result, isolating the changes to Virginia law that impact your business can often be challenging.  In an effort to assist you in meeting this challenge, we have prepared a list highlighting a few of the most notable additions to the Code of Virginia, including excerpts from the bill summaries prepared by the Virginia Division of Legislative Services. For the full summaries, click on the applicable bill number.

Eminent Domain

• House Bill 2024 – Condemnation powers and proceedings; notice to owner or tenant. This bill alters the notice that an authorized condemnor is required to provide to the property owner and/or tenant before the certificate is recorded. Specifically, the bill requires an authorized condemnor or the Commissioner of Highways to give notice between 30 and 45 days prior to the filing or recordation of a certificate in any "quick take" condemnation proceeding. Current law requires notice but does not provide a time frame within which such notice must be given. The bill also requires such condemnor to notify the owner or tenant within four business days of the filing or recording by providing a copy of the certificate by certified or registered mail.

• Senate Bill 927 – Eminent domain; timing for initiation of 'quick-take' condemnation procedure for just compensation. This bill adjusts deadlines occurring after the initiation of a "quick-take" condemnation. Specifically, the bill provides that an authorized condemnor in such a proceeding shall institute the action within 180 days of the recordation of a certificate terminating the interest of the owner of the property. Under current law, such proceedings must be instituted within 60 days after the completion of the construction of the improvements upon the property. The bill further provides that the owner of such property has 180 days after the authorized condemnor has entered upon and taken possession of the property or after the recordation of a certificate to petition the court for a determination of just compensation for the property taken or damaged by the authorized condemnor.

• Senate Bill 1153 – Inverse condemnation proceeding; reimbursement of owner's costs. Finally, this new law directs the court to reimburse a plaintiff for the costs of an inverse condemnation proceeding for "damaging" property if a judgment is entered for the plaintiff. Under current law, the court is directed to award costs only for the "taking" of property. The amendment in this bill corresponds with the language of amendments to Article I, Section 11 of the Constitution of Virginia, which became effective on January 1, 2013, and applies to declaratory judgment proceedings filed on or after July 1, 2017.

Real Estate Interests & Short-term Rentals

• House Bill 2050 – Tenancy; severance by the entireties by written instrument.  In response to Evans v. Evans, Record No. 141277, 772 S.E.2d 576, 2015 Va. LEXIS 84 (2015), this bill clarifies that a husband and wife may own real or personal property as tenants by the entirety for as long as they are married and in order to sever that tenancy by the entireties by written instrument, the instrument must be a deed that is signed by both spouses as grantors of the property.

• House Bill 1554 – Property Owners' Association Act; amendment of declaration. In response to the Virginia Supreme Court decision in February 2016 in Tvardek v. Powhatan Village Homeowners Association, Inc., which concerned a dispute over the proper interpretation of Virginia Code § 55-515.1, this bill amends the statute to provide that except as otherwise provided in the declaration of a property owners' association, a declaration may be amended by a two-thirds (2/3) vote of the owners.

• Senate Bill 1578 - Short-term rental of property; registration of persons offering property for rental. This bill authorizes a locality to adopt an ordinance requiring the registration of persons offering property for "short-term rental," which it defines as the provision of a room or space suitable for sleeping or lodging for less than 30 consecutive days in exchange for a charge for the occupancy. Persons and entities already licensed or registered related to the rental or management of property by the Department of Health, the Real Estate Board, the Virginia Real Estate Time-Share Act, or a locality would not be required to register. The bill authorizes localities to impose penalties not to exceed $500 per violation on persons who violate the registry ordinance.  The bill also amends the Alcoholic Beverage Control (ABC) Act to clarify that certain property rented on a short-term basis is considered a bed and breakfast establishment for purposes of ABC licensing and that the exception from ABC licensing for serving alcoholic beverages to guests in a residence does not apply if the guest is a short-term lessee of the residence.

• House Bill 1623 / Senate Bill 991 – Residential rental property; foreclosure shall act as a termination agreement. Due to the expiration of the Protecting Tenants at Foreclosure Act because the Act expired on December 31, 2014, this bill removes a provision that formerly allowed a tenant to remain in a dwelling unit that had been foreclosed under the Act. The bill now provides that the foreclosure of a residential rental property shall act as a termination of the rental agreement by the owner of such property. In such case, the tenant may remain in possession of such dwelling unit as a month-to-month tenant on the terms of the terminated rental agreement until the successor owner gives a notice of termination of such month-to-month tenancy. The bill also provides how rental payments may be made during the period of the month-to-month tenancy and includes notice provisions relating to managing agents.

• House Bill 1869 – Virginia Residential Landlord and Tenant Act; tenant obligations. This bill places additional obligations on the tenant under the VRLTA, providing that in addition to complying with the terms of a rental agreement, a tenant is financially responsible for the added cost of treatment or extermination of any insects or pests due to the tenant's unreasonable delay in reporting the existence of the insects or pests or the tenant's fault in failing to prevent infestation of any insects or pests in the area occupied.

• House Bill 2033 – Landlord and tenant law; residential tenancies, landlord and tenant obligations and remedies. Among other provisions, this bill conforms general landlord and tenant law relating to residential tenancies to the Virginia Residential Landlord and Tenant Act by providing that the Act shall apply to all residential tenancies; however, a landlord who is a natural person, an estate, or a legal entity that owns no more than two single-family residential dwelling units in its own name subject to a rental agreement may opt out of the Act by stating so in the rental agreement.

Tax Updates

• House Bill 1455 – Real property tax; partial exemption for certain commercial and industrial structures. This bill amended and reenacted Virginia Code §58.1-3321. The new law reduces from 20 years to 15 years the minimum age of a structure in a technology zone that is rehabilitated for commercial use that qualifies the rehabilitated structure for a partial exemption from real property taxes. Under current law, a 15-year age minimum applies only to structures located in an enterprise zone designated by the Commonwealth, and a 20-year age minimum applies in all other situations.

• House Bill 1476 – Real property tax; special assessment for land preservation. This bill prohibits any locality from requiring any taxpayer who is the lessor of real property to produce the lease for the purpose of determining whether the property is eligible for special assessment for land preservation.

• House Bill 1909 – Real property tax; nonjudicial sale of tax delinquent property. This bill permits the nonjudicial sale of unimproved real property valued at less than $5,000 if taxes are delinquent for at least three years. The bill also permits the nonjudicial sale of real property valued at no less than $5,000 but no greater than $20,000 if taxes are delinquent for at least three years, the property is not subject to a recorded mortgage or deed of trust lien, and numerous other requirements are met.

• Senate Bill 963 – Land preservation tax credit; per taxpayer limitation. This bill extends to taxable year 2017 the $20,000 limit on the amount that a taxpayer may claim per year under the land preservation tax credit. The bill retains the $50,000 limit for each subsequent taxable year.

• House Bill 2460 / Senate Bill 1034 – Historic rehabilitation; limits amount of tax credits that may be claimed by each taxpayer.  This bill limits the amount of historic rehabilitation tax credits that may be claimed by each taxpayer to $5 million per year, including any amounts carried over from prior taxable years, for taxable years beginning on and after January 1, 2017, but before January 1, 2019.

• Senate Bill 1286 – Land preservation tax credits; withholding tax of nonresident owners.  This bill provides that the two percent (2%) transfer fee for land preservation tax credits shall not apply to a distribution of credits to a nonresident owner of a pass-through entity when such credits are applied by the pass-through entity to the withholding tax of the nonresident owner.

If you have any questions or want to discuss any of these new laws further, I would be happy to speak with you or connect you with one of the other members of our Commercial Real Estate Practice Group.