Mutual Mistake Is Grounds for Rescinding Auto Repair Shop Lease

What Happened: A landlord and tenant sign a three-year lease on a parcel of real estate containing three garage bays for use as an auto repair shop. Soon after the tenant opens for business, citizens complain about the lack of parking near one of the bays. The city investigates and discovers a 30-year-old ordnance unique to the property ordering the owner to seal one of the bays. The tenant closes and seals the third service bay just to be cautious. The landlord, who was unaware of the ordnance, offers the tenant a rent reduction. But the tenant insists it needs the entire premises for its business and sues to rescind the lease; the landlord countersues for unpaid rent, late fees, utility costs, liquidated damages, and attorney’s fees.  

Ruling: After a one-day trial, the Virginia court rules in the tenant’s favor.

Reasoning: As in most states, mutual mistake of fact is grounds for recission of a lease in Virginia. There was a mutual mistake in this case since both the landlord and tenant acknowledged that they were unaware of the ordnance and assumed all three bays would be available to the tenant when they signed the lease. The mutual mistake also had a material impact on the lease to the extent that closing one of the bays was a significant cost to the tenant’s business. Accordingly, there were grounds for rescinding the lease and the tenant was on the hook only for the reasonable rental value of the premises, namely two-thirds of the rent as well as unpaid utility costs, for the three months it remained on the property with only two bays available.

• Meredith Inv. Partners LP v. Houssni, 2024 Va. Cir. LEXIS 35